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Bitcoin Stabilizes -- but Don't Count on That Continuing

Bitcoin stabilized Wednesday after Tuesday’s 10% drop, but don’t expect the cryptocurrency’s volatility to die down for long.
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Bitcoin stabilized Wednesday after Tuesday’s 10% drop, but investors shouldn't expect the cryptocurrency’s volatility to die down for long.

At last check the cryptocurrency was trading off 1.2% at $46,213.

At a conference Tuesday, JPMorgan Chase CEO Jamie Dimon called bitcoin “a fraud.”

And the currency remains vulnerable to the same sort of plunge that occurred Tuesday and has occurred since the currency began in 2009.

Keep in mind: Bitcoin is not a currency in any real sense. Real currencies are used for real transactions, buying goods and services. Bitcoin is used for speculation. Advocates call it a store of value, but critics say its value stems entirely from the fact that speculators are eager to own it.

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Some analysts said Tuesday’s drop stemmed from profit-taking after El Salvador officially adopted bitcoin as legal tender. Others said the decline resulted from glitches in El Salvador’s bitcoin rollout.

In any case, the currency has shown itself capable of diving or soaring on the slightest bit of news, such as one-word tweets from Tesla  (TSLA) - Get Tesla Inc Report Chief Executive Elon Musk.

To be sure, if enough people believe in the legitimacy of bitcoin, that can make it legitimate, at least for a while. If a solid infrastructure is built up for investing and trading the currency, it can become part of the financial fabric.

Current events seem to be moving in that direction. But if the currency continues its steep roller-coaster ride, legitimate investors may grow tired of the asset.

The real test for bitcoin will be the next time the stock market drops significantly. Last year’s stock market crash didn’t treat bitcoin kindly. It tanked 24% in March 2020.