If big, scary price swings in markets make your blood pressure spike and anxiety levels rise, steer clear of Bitcoin.
The world’s most valuable digital currency has taken investors on a wild ride this year, soaring and swooning at a time when the stock market has been a sea of calm.
It’s surge of more than 1,900% at one point this year captured the imagination of speculators as well as investors on Main Street and Wall Street.
But along the way, Bitcoin has suffered some sizable stumbles — including a 36% plunge in June and July — that would scare even the most unflappable market pros and the biggest Bitcoin believers.
In December alone, it has more than doubled, reaching an intraday record of $19,783 per coin, only to briefly plunge 45% to below $11,000. It then rebounded to $14,290 at 5 p.m. Friday to finish the year up just shy of a 1,400% gain, according to CoinDesk.
“It has been quite a whipsaw,” says Tom Lee, co-founder and head of research at New York-based Fundstrat Global Advisors.
The swings are not for everyone. But that comes with the territory when investing in a cryptocurrency that is not backed or regulated by any country or central bank and which is still looking for mainstream adoption as a both a currency and investment.
Bitcoin critics say its steep price rise has been driven mainly by speculation and that it is a financial bubble no different from the dot-com stock boom of the 1990s and real estate mania from a decade ago.
To put the cryptocurrency’s 2017 gyrations in context, consider that the U.S. stock market has been in a single bull market for nearly nine years. Stocks have not suffered a bear market, or drop of 20%, since March 2009, have not declined 5% since June 2016 (after the surprise Brexit vote) and have moved 1% or more in a single day only eight times in 2017. It’s the tamest year for stocks since 1964, according to S&P Dow Jones Indices.
Bitcoin, meanwhile, has flipped between a bull and bear market 11 times over the same stretch. That means it has enjoyed six runs with 20%-plus gains but also suffered five losses of 20% or more.
Its strongest bull was a 226% gain from mid-November to mid-December, a run-up sparked by the introduction of Bitcoin futures trading on two leading U.S. exchanges and a surge in visibility in the mainstream news media.
Besides its summer swoon, Bitcoin’s steepest drops include a 32% decline in an eight-day span that ended on Christmas Eve and which was fueled by investors cashing in their profits after yet another steep price rise.
Investors should get used to these big drops, FundStrat’s Lee says.
“Bitcoin,” he says, “is prone to 40% corrections.”
But Lee, one of Wall Street’s biggest Bitcoin bulls, says it remains a long-term story that will be driven by a surge in users. He expects digital Bitcoin “wallets,” or the Bitcoin equivalent to a bank account, to rise by 50% by mid-2018.
He recently upped his mid-2018 target for Bitcoin’s price to $20,000, nearly double his earlier projection of $11,500 and 40% higher than its current level.
“Think about it, adoption of Bitcoin is still in its earliest stages, in the U.S. and globally,” Lee says.
And the up-and-down action in Bitcoin appears to be here to stay. Already, it has dipped 10% since its most recent recovery, with blame placed on South Korea trying to rein in speculation.
Some market watchers wonder if bad news is starting to spook Bitcoin investors.
“I wonder whether speculators have become more sensitive to negative news,” says Craig Erlam, senior market analyst at Oanda, a New York-based currency trading firm.
Hold on to your digital wallets, folks.