Roughly one year ago, Berkshire Hathaway CEO Warren Buffett wrote the following in his 2023 shareholder letter: "For whatever reasons, markets now exhibit far more casino-like behavior than they did when I was young. The casino now resides in many homes and daily tempts the occupants."
Buffett has a way of simplifying complicated ideas, often explaining them in sobering ways. I can't help but see a subtle and perhaps hidden sense of loathing that Buffett may feel nowadays, given how the activity in the markets seems increasingly driven by narratives as opposed to sound fundamentals, such as earnings and growth.
I'm in no way suggesting this is how Buffett feels. Rather, this is my own interpretation of his metaphor comparing the stock market to a casino.
Image source: Getty Images.
One of the most casino-like investments over the last decade is the world of cryptocurrency, and in particular Bitcoin (BTC 0.68%). As I write this, it has now officially surpassed $100,000 per coin.
This is an impressive milestone. But as Buffett writes, the capital markets have become a labyrinth of heightened volatility -- much of which stems from a rising number of unsophisticated retail investors engaging in risky behavior right from the comfort of their homes.
To add another layer of intrigue to the Bitcoin narrative, Donald Trump is now president-elect and will be headed back to Washington a little over a month from now. Why does this matter?
From his initial campaign and victory back in 2016, to running for president again after losing the 2020 election, Trump has been a relevant figure in politics for nearly a decade. This is roughly the same time during which Bitcoin emerged as a popular mainstream item, introducing cryptocurrencies in the financial world.
Below, I'm going to explore how it has moved during Trump's time in politics and outline what could fuel the coin to new highs over the next four years. Is now a lucrative opportunity to buy Bitcoin, or is rolling the dice one more time in the casino best avoided? Let's find out.
CRYPTO: BTC
Key Data Points
Taking a walk down memory lane
The charts below compare the price appreciation of Bitcoin, the S&P 500, and Nasdaq Composite between Jan. 20, 2017 (Trump's first inauguration), and Dec. 6, 2024. The obvious takeaway is that investing in Bitcoin or the stock market in early 2017 and holding over the long-term has paid off in spades.
But that is a superficial observation that doesn't really yield much value.
The gray-shaded columns represent the COVID-19 recession. Do you see what I see? Be it Bitcoin or the capital markets, the trend is that the upward slope of each line begins to steepen considerably shortly after the pandemic-induced recession.
Bitcoin price data by YCharts.
Remember what happened during the pandemic: Meme-driven short squeezes became regular occurrences due to online personalities and chatrooms on Reddit. At the click of a button, unsuspecting people turned the market upside-down right from their homes as investing became a gamified phenomenon.
In other words, the market turned into a casino. And just like a casino, a lot of people made a lot of money during this volatile period. But also just like a casino, many people were left holding the bag.
Will Bitcoin rise over the next four years?
There are many factors that could influence the price of Bitcoin over the next four years.
For starters, the chairman of the Securities and Exchange Commission (SEC), Gary Gensler, recently announced his resignation. This is important because Gensler hasn't been the most positive supporter of Bitcoin over the years. By contrast, President-elect Trump was a vocal supporter of Bitcoin during his campaign, and he recently nominated crypto enthusiast Paul Atkins to replace Gensler.
The GOP will also control Congress under Trump's new administration. In theory, this should help the president-elect push forward any legislative changes he might try to make as it pertains to crypto regulation.
In the words of Simon Sinek, one of my favorite self-help personalities and motivational speakers: "Gambling is fun. Too much gambling is dangerous."
I couldn't agree more. I'm not here with a sanctimonious sermon about how gambling and casinos are bad. But what I encourage you to think about is that if you are assuming more risk than you normally would, such a move should be calculated. You need to know your limit.
Do I think the price of Bitcoin will rise over the next four years? History suggests that it should. And personally, I don't see anything that could cause a widespread, long-lasting crypto winter anytime soon.
But with that said, I think it will rise because, as I tried to show above, prices of assets tend to increase over the long term. Unless President-elect Trump actually introduces real change in the regulatory environment or Bitcoin suddenly becomes a mainstream form of payment, I think any gains in the cryptocurrency market over the next few years will continue to be driven by narratives and perception and less so by concrete progress.
As much as I enjoy some fun every now and then, I'm content sitting on the sidelines and avoiding the casino -- just like Buffett.
