Bitcoin: Boom, Bust and Big Opportunity?

TheStreet taps two crypto experts, Bobby Ong of CoinGecko and Dave Balter of Flipside Crypto, to discuss the April 'bloodbath' and what it means for investors.
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Did the world just witness the bitcoin bomb? Or, the chance for a bitcoin buy?

The famed cryptocurrency fell sharply over the past week, sinking from its mid-month high of over $64,000 to under $48,000, where it hovered Sunday evening.

But the move may prove an opportunity for longer-term investors.

"Bitcoin's volatility isn't a flaw, it's a gift -- especially for the up-and-coming investor class of millennials and Gen-Z," said Dave Balter, the chief executive of Flipside Crypto, which provides analytics and business intelligence to crypto organizations, in an email to TheStreet. "The last month is a reflection of its natural cycles, but also of a maturing institutional speculation and futures market."

And, said Balter, any good investor "knows there's always money to be made with volatile assets." 

Still, the move shook up some observers. Before the fall, bitcoin had been on a steady upswing, with many forecasting that it was not a question of if, but when, it would hit $100,000. Just in the past quarter, the cryptocurrency scored several new highs and surpassed $64,000 on April 14. By that time it had also grown by over 1,000% from a year-ago, when on March 13, 2020, it crashed 40% intraday to $5,413, according to a new report by CoinGecko, one of the largest independent cryptocurrency data aggregators. 

The past week's drop also came after several months of bullish buildup on crypto that dominated financial news headlines: Tesla  (TSLA) - Get Report had said in March that it was holding bitcoin as an investment asset and would take it as a form of payment; Visa  (V) - Get Report got further into crypto; and Grayscale Investments revealed it planned a bitcoin exchange-traded fund. And then there was the hysteria of Coinbase  (COIN) - Get Report going public.

"There was already a massive amount of leverage in the market in anticipation of the Coinbase" listing, Bobby Ong, CoinGecko's chief operating officer, told TheStreet in an email. "The excitement of having the first crypto company IPO also led bitcoin’s price to hit a new all-time high."

Further exacerbating last week's selloff was its occurrence during a weekend when there were thinner order books, said Ong. 

"With high leverage and thin order books, even a small decrease in price will trigger a sharp drawdown and cause a downward spiral in price," he said.

Now, the market needs to correct itself, because there were many over-leveraged traders, said Ong, adding that bitcoin options expire toward the end of every month, which usually causes increased volatility around that time.

But it's still well worth investing in, he said, if the time horizon is further out. 

"Have a long-term horizon, choose an exposure of your net worth that you are comfortable with, and hold for the long term. We are still in the early innings of bitcoin adoption, and we foresee tremendous growth potential in the years to come," he said.

Bitcoin Ban?

But there were other events surrounding cryptocurrency over the past month, as well. Despite bitcoin's rise through mid-April and excitement leading up to Cionbase's offering, it wasn't all glitter for the digital coin, even prior to the slip. 

Not only did Coinbase's direct listing somewhat disappoint in the days following, but star investors had been growing increasingly vocal about their skepticism of the cryptocurrency. 

Hedgefund investor Ray Dalio of Bridgewater Associates told Yahoo News in late March that he felt there was a “good probability” bitcoin could become outlawed in the U.S. He also questioned the privacy of the cryptocurrency's transactions. Then, last week, Guggenheim Partners’ Scott Minerd told CNBC that while he's bullish on bitcoin over the long-term, bitcoin is too "frothy" and could fall 50%.

That lukewarm reception from stock investors over Coinbase's direct listing and "a lot of fear and uncertainty" spreading on social media didn't help bitcoin, suggested Ong, noting the recent headlines of crypto bans in India and Turkey.

But aside from the technical and fundamental moves in crypto in the waning weeks of April -- much of what happened in the media was little more than hype and speculation, suggested Balter.

"I'd hate to go on record for ever saying Ray Dalio doesn't know what he's talking about," said Balter, who is also a partner with venture capital firm True Ventures. "That said ... like any asset, there's always a great deal of speculation -- bitcoin is esteemed in that it presents both technical and financial implications, and thus magnifies that speculation immensely."

But, he said, that people like Dalio and Minerd are even talking about crypto so publicly on the record, shows how far the digital currency has come, also responding to a recent comment by value investor Bill Miller, who  told CNBC this month that he sees bitcoin establishing itself in the "mainstream."

"The fact that all three are going on record would indicate that bitcoin is likely entering the mainstream, so hat-tip to Mr. Miller," said Balter. "The volatility of bitcoin has always been part of its allure, so cutting in half isn't out of the question.... Although, I don't think we'll ever see $10,000 levels again. As for Mr. Dalio, unfortunately the concept of outlawing an asset that is conceptually decentralized is pretty much out of the question, and bitcoin transactions are hardly private, so sorry Mr. Dalio, you are pretty off the mark."

This story has been updated.