21 05/21 21/05/2021

More on Bitcoin

Bitcoin, although the best performing asset class this year, entered into a free fall this week bringing other cryptocurrencies along with it. The coin began to retract last week when Elon Musk, the CEO of Tesla, tweeted (posted on social media) that Tesla will not be accepting Bitcoin as a payment method anymore. The price later stabilized when Musk tweeted that Tesla will not be selling its $1.5 billion stake in Bitcoin. Bitcoin went into another free fall this week as another tweet of Musk implied the opposite. On top of that the People’s Bank of China also ruled out cryptocurrencies as a method of payment. China is considering creating its own digital yuan for that matter.

Bitcoin fell more than 53% this past month due to these developments but started to rebound later in the week. Because Bitcoin does not have an intrinsic value, the pricing is fully dependent on investor’s optimism or fear. This is what makes the price so volatile and vulnerable to news and comments, good or bad, from reputable institutions and investors. Bitcoin as an investment is thus speculative in nature. The chart below shows the volatility of Bitcoin. The least decline in a Bitcoin correction since 2010 was -30%, the most -94% with an average decline of -58%. For comparison, the average market decline for the general stock market during corrections is -11%.

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