BITCOIN @ $36445; it’s mind boggling. I am still not sure why Bitcoin assets are skyrocketing. A more than 300% surge in three years to test 41,970 is difficult to believe as it is a very risky investment.
The market has witnessed some extreme volatility. Despite all purchases being done against currencies, I am not sure about regulators’ role or their future plans to address the permission-less public blockchain.
I have been receiving quite a few queries, mostly from amateurs, about its reliability. Few of them asked me if it is liquid enough to be bought and sold easily? Are they registered to transact? What if they go bust? What are the crypto rules and how can we trust crypto currency firms? Is the buying speculative or it is still a good buy? Is Bitcoin asset a good buy in the long term?
Importantly, since they are not regulated, but good money is involved and the total size of crypto market capitalization is close to USD one trillion, it is for the regulators to ensure that they register entities and ensure that dirty money is not involved.
Though Bitcoin is not a currency, it’s basically a payment system executed electronically through passcode without any authorization via technology platform with the help of software, which is risky.
The trend in the past (December 2017) showed us a surge to almost $ 20.000 levels and soon after hitting the all-time highs, the market witnessed a series of collapses to touch a whisker below $ 4.000 level. After the fall, it took nearly three years to surpass the 2017 peak.
The complication in determining the future trend is that it is not backed by the authorities, nor has it a fundamental value.
Hence, it becomes extremely difficult to determine the price moves.
This month we saw the surge for third time, before a sharp plunge happened. But holders look firm and are still holding crypto currencies.
It is important to note that it was launched about 12 years ago and regulators never bothered to take any action. It is probably a tiny part of the investor’s portfolio and holders look confident.
However, since it is not backed by data or fundamentals, price movement may remain volatile. Last week the UK regulators, Financial Conduct Authority (FCA), had already warned crypto investors that they risk losing all their money. I doubt all the money will be lost unless global regulators decide to stop all crypto trading.
Globally, central banks (CBs) are divided on the issue of digital currencies. Instead, various CBs are considering launching their own digital currencies.
Therefore, I will be keenly watching for a break of all-time highs of $ 42.000 plus for new highs. Bitcoin holders should realise that they cannot rely on sheer market sentiment and hopes.
If long, preferably selling half of the holdings and taking profit, may be a sound strategy. And watch if it breaks and surpasses 48.000 for more gains. A plunge would protect half of the investments, which is in profit. The fate of the remaining half will be unknown, as the downside risk is quite large.
The market will constantly remain volatile and sharp moves will often be seen at intervals due to lack of information.
(The writer is former Country Treasurer of Chase Manhattan Bank. The views expressed and forecasts made in this article are not necessarily those of the newspaper)
Copyright Business Recorder, 2021
(The writer is former Country Treasurer of Chase Manhattan Bank. The views expressed in this article are not necessarily those of the newspaper)
He tweets @asadcmka
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