Volatility spiked in the crypto market on Friday as Bitcoin (BTC) bulls launched an assault on bears' resistance line at $68,750, briefly breaking through to establish a new all-time high of $70,220 on Coinbase.
The new high was only temporary, however, as its price proceeded to whipsaw to a low of $66,180, and at the time of writing, bulls and bears are battling it out for control near support at $68,500.
“ETF inflows continue to sustain the upward price movement, and we may see more inflow in the coming days as the news about Bitcoin's new high permeates the wider populace,” said Rachel Lin, co-founder and CEO of SynFutures. “While BTC consolidates near its top, Ethereum and other altcoins have taken the reign with impressive gains in the past few days.”
“The community has overwhelmingly positive sentiment with altcoins running up and Bitcoin [hitting new] all-time highs,” she said. “It must be noted that near the top, we will likely witness a lot of volatility. A 14% fall in Bitcoin in a matter of hours after the fresh all-time high [on Tuesday] and a quick rebound wiped out more than a billion dollars in long and short positions in a single day. This is the highest liquidation event we have seen in over six months.”
While BTC continues to show strength at these elevated levels, history shows that there is still a strong likelihood that a major correction is in order, so traders should be advised, she said.
“These are exciting times for those who have weathered the bear market and kept faith in the ecosystem,” Lin said. “However, the chances of significant price action and strong corrections remain. During the last bull market, Bitcoin witnessed a 25-30% correction for a few days before the trend resumed higher. Trade responsibly.”
Re-evaluating Bitcoin’s place in the world
According to Raphael Zagury, Chief Investment Officer at Swan Bitcoin, the increasing price of Bitcoin is leading many investors and advisors to re-evaluate their position on the top crypto.
“The recent surge in Bitcoin's price prompts a reflection on its underlying value and the narratives surrounding its ascent, especially in comparison to traditional assets like gold, stocks, bonds and real estate,” Zagury said in a note shared with Kitco Crypto. “Market participants are recognizing Bitcoin as a novel savings technology, akin to other nascent assets, which naturally entails volatility as they grow.”
“Firstly, historical data analyses suggest Bitcoin offers exceptional risk-adjusted returns,” he said. “Its remarkable Sharpe ratio and low correlation with traditional assets make it an attractive addition to diversified portfolios. Essentially, the data indicates that ignoring Bitcoin completely could be a missed opportunity for enhancing portfolio performance.”
Zagury said that from a fundamental perspective, “Bitcoin's built-in scarcity, with a maximum supply of 21 million coins, presents a strong case against gold, whose supply is uncertain and can increase with higher prices, potentially leading to a decrease in value.”
“This scarcity, coupled with Bitcoin's efficiency in transfer and storage compared to the physical constraints of gold, positions Bitcoin as a superior asset,” he said. “Bitcoin has the potential to gradually demonetize not only gold but other major asset classes that historically have been used as savings technology like stocks, bonds, and real estate.”
Pushing back against the common criticism that Bitcoin is too volatile to make up a large percentage of investors’ portfolios, Zagury said, “It's important to consider that volatility is a feature of many emerging assets, reflecting both the risks and potential for significant gains. The Bitcoin halving events further emphasize its scarcity and programmed monetary policy, contrasting with gold's more unpredictable supply dynamics.”
While he sees Bitcoin’s price continuing to rise for the foreseeable future, he admitted that “Forecasting Bitcoin's price is extremely hard, given its unique characteristics and the interplay of various factors.”
“However, Bitcoin's potential to outperform gold as a store of value and its utility in portfolio diversification suggest significant upside, especially when considering its relatively small market cap compared to other asset classes,” he said. “The ETF allows anyone with a brokerage account to now have access to Bitcoin. This is a game changer and the potential impact is way underestimated, in my opinion. The capital flows into Bitcoin ETF dwarf the flows into gold ETF."
