Bracing for a crypto comeback? Consider buying the granddaddy of cryptocurrencies, Bitcoin (BTC 0.29%), if you're bullish on blockchain-based tokens generally. After all, crypto is already volatile enough, so investors can reduce their volatility exposure somewhat by sticking with a token that's expensive and, consequently, typically slower-moving than low-priced cryptos like Ripple and Cardano.
On the other hand, a five-figure token like Bitcoin isn't capable of skyrocketing -- or is it? So don't think of Bitcoin as a dinosaur among digital assets. Under the right conditions, it can provide a perfect combo of stability and explosiveness.
No need to fear the Fed
Every time Bitcoin has crashed since its inception in 2009, critics have predicted its demise. However, they have been consistently proven wrong after the token fully recovers. It's taking a while for Bitcoin to regain its footing this time around, but a full recovery to the previous peak of around $69,000 would represent a 3x move.
CRYPTO: BTC
Key Data Points
Whether that's "skyrocketing" or not may depend on your definition of the term, but a 3x move is certainly respectable. Crypto critics are fond of saying, "This time it's different," but Bitcoin's perfect track record of full recoveries following at least a half-dozen crashes puts the burden of proof squarely on the bears' shoulders until proven otherwise.
Besides, investors should consider why Bitcoin crashed this time around. Concerns about intensified crypto regulation and the legitimacy issue are certainly pieces of the puzzle. But a primary contributing factor to the Bitcoin plunge that began in late 2021, was, without a doubt, the market's fear of higher-for-longer interest rates.
That fear puts negative pressure on risk-on assets such as formerly high-flying tech stocks. One might argue that the Federal Reserve is closer to the end than the beginning of its hiking cycle, but there's no need to go down that road. Instead, consider whether Bitcoin really competes with government bonds like large-cap stocks do.
While this might change someday, currently, 401(k) plans and other large-scale investment funds are mainly comprised of stocks (and/or mutual funds and exchange-traded funds containing stocks) and bonds. You won't see bonds competing with Bitcoin for allocation space in these funds. If anything gets temporarily displaced in the mix when bond yields surge, it will probably be stocks. Firmly dedicated Bitcoin believers, meanwhile, are famous for holding onto their tokens through thick and thin. To them, a Bitcoin-versus-bonds debate never arises.
A Bitcoin ETF is a matter of "when," not "if"
Meanwhile, for better or for worse, Bitcoin's battle for legitimacy and regulatory acceptance is currently being waged in the courts. Specifically, Grayscale has taken the Securities and Exchange Commission (SEC) to court, alleging that the regulator unfairly rejected its application to convert its Grayscale Bitcoin Trust (which can currently be traded under the ticker GBTC) into a full-fledged spot Bitcoin ETF.
Grayscale argues that there are already approved Bitcoin futures ETFs out there. In this light, it may be contended that the SEC isn't being consistent or impartial. Grayscale is reportedly willing to take this battle to the Supreme Court if necessary, but even if Grayscale doesn't prevail this time around, it's likely that somebody somewhere will eventually.
At this point, Bitcoin is too large and influential to ignore; its market cap has already surpassed those of Visa and Mastercard. Regulators must be quick to scrutinize and slow to adopt new technologies, especially when they disrupt the status quo.
Granted, there's no guarantee that a legitimate Bitcoin ETF will emerge in the near future, but if and when it finally happens, the floodgates will be opened, giving convenient, accessible access to the world of cryptocurrency to the masses. Making Bitcoin-based investment vehicles available through popular stock brokers, 401(k) plans, and investment advisors should be a game-changer. This prospect, along with Bitcoin's past penchant for vertical recoveries when they finally occur, suggests a possibility -- perhaps even a probability -- of a rocket ride sooner or later.
So feel free to take a moderately sized position in Bitcoin before the shuttle leaves the launch pad.
