Laith Khalaf, head of investment analysis at AJ Bell, comments on the new record high achieved by Bitcoin:
“Bitcoin has today hit a record high as the tech-based market melt-up continues to gather pace. At times like these investors need to keep the ‘FOMO’ in check, especially when it comes to something as febrile as crypto. This might not be the top of the current bull market in Bitcoin, but anyone buying in should be willing to accept the potential downside, especially if the crypto market eventually proves to be the emperor’s new clothes. The Bank of International Settlements estimates that around three quarters of Bitcoin buyers between 2015-2022 were likely to have lost money, despite a huge rise in the price of the cryptocurrency, almost certainly because they got sucked in at precisely the wrong time.
“The recent surge in Bitcoin accompanies a broader rally in risk assets, and particularly tech stocks this year, with Nvidia leading the charge in the US equity market. In contrast to Bitcoin, Nvidia has actually posted impressive earnings growth, and so is a much safer bet, albeit coming at a premium valuation and with some speculative elements. Bitcoin doesn’t have any earnings and doesn’t pay an income, so price action is largely driven by sentiment. If you buy some, you’re relying on someone paying more than you further down the line to turn a profit. While that’s true of shares in companies too, earnings in the real economy provide an anchor for sentiment to coalesce around. Even with this stabilising force, equity markets can be choppy enough.
“The rise in Bitcoin has also been galvanised by the launch of spot ETFs in the US, which is seen as a crucial step towards integrating Bitcoin and cryptocurrencies into the mainstream financial ecosystem, and potentially paving the way for a global rollout. The regulatory approval of these products also adds a layer of legitimacy to Bitcoin, amidst concerns raised by policymakers, including in the UK.
“Several challenges could hamper Bitcoin's long-term growth. These include regulatory uncertainties and environmental concerns related to Bitcoin mining. Moreover, the emergence of Central Bank Digital Currencies presents a double-edged sword. While they appear to validate the concept of digital currencies, they also pose direct competition to decentralised cryptocurrencies like Bitcoin.
“The long-term adoption of cryptocurrencies by consumers, businesses, and investors remains highly uncertain. Bitcoin's volatility challenges its utility as a currency, and while the new ETFs have initially attracted interest, institutional investors may remain cautious about incorporating cryptocurrencies into their portfolios. As ever, retail investors shouldn’t bet their shirt unless they’re willing to lose it.”
