Bitcoin (BTC 0.57%) hit its record price of more than $126,000 in early October. As of Dec. 15, it trades more than 30% below that all-time high. There might be many explanations for the factors driving the recent downward trend. However, the reality is that Bitcoin remains a volatile asset. These days, it's heavily affected by liquidity and capital flows, as well as investors' views on the macroeconomic environment.
This has become a global financial asset that investors shouldn't ignore. At the current price of about $86,000, should you buy Bitcoin?
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There are forces working to Bitcoin's benefit
Bitcoin's price might be under pressure, but investors shouldn't let that distract them from the fundamentals.
There is a key metric to pay attention to that can help you gauge how the network is performing, and that's the hash rate. This measures the amount of computational power that is being used by miners to process transactions. A higher number means it requires more calculations to mine a new block, indicating more competition among miners. Hash rate essentially acts as a proxy to determine how secure the network is. Over time, the hash rate has climbed rapidly. Right now, it's near a record high. In other words, Bitcoin's blockchain is as robust as ever from a security point of view.
External to the Bitcoin network are other factors to keep in mind. There is a supporting infrastructure that helps boost adoption of Bitcoin. Payments, lending, and custody solutions for Bitcoin are examples of financial services that are being introduced. The spot Bitcoin exchange-traded funds (ETFs) have attracted tens of billions of dollars of capital inflows, indicating heightened demand among certain capital allocators to gain access. And Bitcoin treasury companies have come to market, raising capital in unique ways to accumulate and hold Bitcoin.
We also can't ignore the favorable regulatory environment. The U.S. has pushed forward multiple pieces of legislation that help to support innovation, growth, and adoption of Bitcoin and crypto.
CRYPTO: BTC
Key Data Points
How high can Bitcoin's price go?
In the world of investing, experts make price targets all the time. The truth is that no one has any idea of where a particular asset, whether it's a stock or a cryptocurrency, will be trading in the future. In Bitcoin's case, a forecast is even more difficult to make because it's not a traditional company that sells products and services, and that generates revenue or cash flows. Nonetheless, this won't stop people from at least aiming to predict what the future will bring.
Here's where Strategy Executive Chairman Michael Saylor gets a lot of attention. He previously set a price target for Bitcoin to reach $21 million per unit by 2046, which would equate to a monster 24,400% gain from today's price. There are hundreds of trillions of dollars of worldwide wealth held in other asset classes. Saylor's belief is that some of this money will move from things like stocks, bonds, and real estate to Bitcoin as people wake up to its unique properties, like that it's decentralized, borderless, and has a fixed supply of 21 million coins.
Saylor's lofty prediction is music to bulls' ears. However, maybe a more tempered perspective makes sense. I think it's a smart idea to compare Bitcoin to gold. Both have similar traits, with gold being adopted as a store of value for thousands of years. The value of all above-ground gold on Earth is estimated to be $30.2 trillion, more than 17 times the current market cap for Bitcoin. The fact that Bitcoin is purely digital should make it a more compelling asset to own in an economy and society that's only going to become more digital. Bitcoin's market cap is poised to approach that of gold in the long run.
As Bitcoin continues to trade well below $100,000, it's a good idea for investors to think about buying the top digital asset.
