The case for Bitcoin (BTC) despite the ~61% price crash

Bitcoin (BTC) price has gone through a rough patch in the past two years. After peaking near $68,000 in 2022, Bitcoin has plunged by ~61% to the current ~$26,000. Other cryptocurrencies like Avalanche, Solana, and Algorand have performed worse. Still, a case for investing in Bitcoin in 2023 can still be made.

Bitcoin has faced headwinds

Bitcoin price has been a bad investment to people who bought it at its highest level. However, it has been a great asset for people who invested in it since its inception in 2009. Bitcoin has surged by more than 8,000% since December 2014 while S&P 500 and gold have risen by ~108% and ~65%, respectively.

Bitcoin has faced numerous headwinds over the years. First, there was the well-known collapse of Mt.Gox, the then leading crypto exchange. It has also survived other well-known collapses like FTX, Terra, Celsius, Voyager Digital, and Three Arrows Capital.

Second, Bitcoin has also faced regulatory challenges. China has banned Bitcoin and other cryptocurrencies. In the United States, the Securities and Exchange Commission (SEC) has also filed numerous lawsuits challenging the top players in the industry. 

Most recently, the agency filed lawsuits against Binance and Coinbase. It has also resisted moves to take Bitcoin mainstream by accepting spot ETFs. Such funds would lead to more investments by large institutional investors.

Third, and most importantly, Bitcoin is facing the challenge of high-interest rates. The Federal Reserve has already delivered numerous rate hikes, pushing rates to the highest level in more than two decades.

The case for Bitcoin

Despite the recent challenges, there is still case for investing in Bitcoin for long-term investors. 

First, long-term Bitcoin holders are still optimistic about the coin. On-chain data shows that these holders have over 14.6 million Bitcoins, representing over 75% of supply. This means that most of the recent fluctuation has been caused by minority holders.

The percentage of Bitcoin's supply held by long-term holders is quietly about to break its all-time high of 76% pic.twitter.com/p9lIhXc3CA

— Will (@WClemente) September 18, 2023

Second, Bitcoin has already weathered so many storms in the past decade even with no major institutional investors. As mentioned, it has survived collapses like Mt.Gox, FTX, and Terra. It also thrived during the Covid-19 pandemic, the biggest black swan event in modern times.

Third, and most importantly, Bitcoin seems to be doing well in the high-interest rate environment that we are in. Rates have already jumped from zero, where they were for over a decade to 5.5%. And the Federal Reserve believes that they will peak at 5.75%.

Rates have not been this high for more than 20 years. As a result, money market fund yields have surged to almost 6%, making cash quite attractive. Despite this, Bitcoin has already jumped from last year’s low of $15,000 to over $26,000.

Most crucially, Bitcoin is still valued at over $565 billion. If it was a company, Bitcoin’s market cap would rank it as the 10th biggest firm in the world. It would be bigger than Eli Lilly, Visa, UnitedHealth, Exxon, and TSMC.

To be clear, Bitcoin is still a risky investment, as we have seen with its historical volatility. However, BTC has surpassed many people’s expectations in the past decade. And most importantly, Bitcoin is yet to crash to zero as many well-known investors like Charlie Munger and Warren Buffett predicted a few years ago.