Cryptocurrency is an exciting frontier that's still new. Bitcoin (BTC 0.77%) has only been around since 2009, and crypto as a whole has been relevant for just the past decade or so.
Sometimes, timing is everything. Two years ago, Bitcoin traded at more than $60,000. Had I asked whether the coin could climb to $100,000, you might have said it was going to the moon. Today, you might answer differently. Bitcoin has since plummeted, falling as much as 75% from its peak.
Now, trading at just under $40,000... can Bitcoin reach $100,000? Here is why you should be optimistic.
Bitcoin's volatility is normal
Bitcoin has proven volatile over the years. It's suffered several drops from its high of more than 60%. Why? Bitcoin and crypto as a whole is a unique asset. Stocks represent underlying businesses, and governments assign value to fiat money. All these assets trade on markets, but Bitcoin depends solely on what buyers and sellers are willing to pay.
Given its decentralized nature, it makes sense that Bitcoin could see higher prices when markets are feeling good and lower prices when markets are afraid. In other words, the volatility is normal.
Bitcoin Price data by YCharts
The key, of course, is where prices go over time. Bitcoin is also a unique asset because there is a finite supply. If more people use and want Bitcoin in the future, higher demand should create higher prices. This is the central investment thesis for holding Bitcoin.
Shedding crypto's bad actors
There are both pros and cons to a decentralized asset like cryptocurrency. Unfortunately, the lack of guardrails in the industry attracted bad actors, scammers, and criminals. This goes far beyond the occasional sketchy crypto project where the developers abandon the investors (a rug pull).
The world's top two largest cryptocurrency exchanges have been mired in controversy. Sam Bankman-Fried was recently found guilty of fraud and conspiracy. He founded and grew his cryptocurrency exchange, FTX, which collapsed during a liquidity crisis after he misappropriated customer and investor money.
Meanwhile, Binance, the world's largest crypto exchange, recently settled with the U.S. government on money laundering charges. Its founder and CEO, Changpeng Zhao, has stepped down.
CRYPTO: BTC
Key Data Points
These are tremendous, ground-shaking events for the industry. Could one imagine what would happen if it turned out Bank of America was running a fraud and collapsed? On the other hand, this could be healthy for the crypto space in the long run. Getting the bad apples out of the basket could build trust in crypto, ultimately advancing it.
Can Bitcoin reach $100,000?
There's no doubt that Bitcoin can reach $100,000, but the real question is... will it? Personally, I think it will eventually. The collapse of these huge, fraudulent crypto exchanges may seem damaging, but cleaning it up could create a healthier crypto industry.
A healthier industry could help Bitcoin go to new levels because the central thesis of Bitcoin remains intact. It's an asset with a limited supply, so increased adoption of and demand for Bitcoin will naturally increase what the market is willing to pay.
Of course, investors should keep their portfolios diversified across asset classes, including crypto, stocks, and bonds. If you're holding Bitcoin, don't make it a higher percentage of your total portfolio than you would any other stock. Bitcoin isn't a get-rich-quick scheme, but an emerging asset that must prove itself over the coming years.
