Bitcoin is approaching $80,000 for the first time in months.
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Key Takeaways
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The recent action in bitcoin “is certainly from the extension of the ceasefire,” a crypto asset manager said, as investors have been willing to take on more risk.
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But some experts says the average bitcoin investor is sitting at a loss and may be looking for spots to sell and break even.
A rally in risk assets is helping drive the price of bitcoin higher. Can it continue?
There are reasons to believe its rise might sputter, some experts say, but the leading cryptocurrecy has been performing lately. Bitcoin is up about 5% in the past 24 hours, today nearing $80,000—a level it hasn’t seen since February—and rising alongside U.S. stocks on Wednesday as investors extended a run of risk appetite fueled by optimism about a resolution to the Iran conflict.
The latest move higher in bitcoin’s prices is “certainly from the extension of the ceasefire,” according to Gerry O’Shea, head of global market insights at crypto asset manager Hashdex. A return of the “institutional adoption” narrative—with Morgan Stanley (MS), Goldman Sachs (GS) and Charles Schwab (SCHW) all recently rolling out crypto products and services—is “helping fortify” those gains, O’Shea said in an interview with Investopedia.
WHY THIS MATTERS TO YOU
Digital assets experts are attributing the cryptocurrency’s recent climb to the return of the “institutional adoption” story, but prices may not move meaningfully higher in the near future.
Bitcoin has outpaced both U.S. stocks, viewed as a risk asset, and gold, a haven asset, since the outbreak of fighting in Iran. Its perceived risk-reward profile after a steep pullback that cut prices in half from October peaks to February troughs likely helped, according to digital asset experts.
Bitcoin’s correlation to equities dropped as prices declined, according to Jim Ferraioli, Director of Crypto Research and Strategy at Schwab Center for Financial Research. Since the start of the Iran conflict, bitcoin and the S&P 500 has had a near one-to-one relationship when U.S. stocks were falling, but bitcoin had 50% more upside relative to equities on up days, per Ferraioli’s analysis.
“The risk-reward has reset because equities were starting at a higher valuation,” he told Investopedia.
What might keep prices from going much higher from here are two “psychological” thresholds that may encourage investors to sell Ferraioli said. He estimates that the average bitcoin investor is sitting at a loss, with the average cost basis of spot bitcoin ETF investors at $83,000 and the average cost basis of bitcoin buyers on the secondary market, excluding crypto miners, at $78,000.
“It would make sense for investors to want to sell at those levels,” he said, because they’d be breaking even after several months of declining prices.
Read the original article on Investopedia