In December 2017 Bitcoin traded to a high of $19,343.04 which was an incredible feat considering it was at six cents in 2010. When the leading digital currency instrument was on its high, the market capitalization of asset class had grown to over $800 billion. It looked like it was only a matter of days or weeks before it would reach the one-trillion-dollar mark, but gravity took over and the price of Bitcoin most of its crypto-cousins fell like stones. Bitcoin reached a low of $6,620.41 on April 6.
As the chart shows, Bitcoin has been making higher lows since its peak last December, but the price recovered and was trading at over $8,400 on May 21. At their recent annual shareholder’s meeting in Omaha, Nebraska, Warren Buffett and Charlie Munger took the burgeoning market to task. While Buffett called Bitcoin and digital currencies to financial “rat poison” Munger said that those involved in the market were trading “turds.”
Any new technology that challenges the status quo typically receives a tremendous amount of pushback from those who have a vested interest in the conventions that created their success. Bitcoin and all the cryptocurrencies provide an alternative to traditional money and banking. Additionally, they take central banks, governments, and regulatory authorities out of the picture as they operate on a global basis, are products of technology, and exist in the world of cyberspace. Blockchain tracks ownership which is protected by codes that are like the Swiss bank account numbers that protected the capital of those seeking the ultimate in privacy. Another high-profile detractor, JP Morgan Chase’s Jamie Dimon, vocally opposed Bitcoin and the asset class in 2017 stating that the rise was a bubble that would go down in history as more significant than tulip bulbs in the Netherlands in the 1600s.
The ascent of Bitcoin in 2017 turned out to be a hot potato late in the year, and many late-comers were left holding expensive long positions at prices above the current market price. However, other market participants have been successfully trading the digital currency rather than investing in Bitcoin. After all, the market has offered incredible levels of volatility not available in any other asset class. Even though the wild variance of 2017 has calmed, the price of Bitcoin has traded in a range from $7,962.35 to $9,910.39 between April 18 and May 18. The 24.5 percent trading band offers traders plenty of opportunities to make money from short-term price volatility in the market.
While Buffett, Munger, and Dimon stand on one side of the argument against the world of digital currencies, some of the forward-looking institutions that thrive in volatile trading environments have begun to embrace the market. Both the CBOE and CME introduced futures contracts in Bitcoin in late 2017, and Goldman Sachs is currently making plans to open a trading operation.
While technology has changed most businesses over past decades, the metamorphosis has finally arrived in the financial world, and its most significant manifestation is Bitcoin and the digital currency asset class. Given its wide price range and growing addressable market, trading Bitcoin could offer market participants lots of opportunity in the weeks, months, and years to come.