Source: Radio New Zealand
The price of Bitcoin has fallen significantly after a volatile year. CFOTO / NurPhoto via AFP
Falls in Bitcoin’s value are typical of the cryptocurrency’s high levels of volatility, experts say, but having a proponent in the White House is likely to put a floor under its price.
The price of Bitcoin has fallen significantly after a volatile year.
In mid-October it hit a record of more than NZ$214,000 but it has dropped sharply since then, back to levels last seen in April. Prices are now about 7 percent lower year-on-year and down 20 percent in a month.
“It’s been a pretty bouncy road this year for Bitcoin, post Trump coming in,” Rupert Carlyon, founder of Koura KiwiSaver said. Koura offers a crypto fund.
“Twelve months ago, Trump came in, it all got quite frothy and then it kept on building.
“This time, with all the nervousness in the last couple of weeks around, is the US Fed actually going to continue with the cutting cycle, is AI massively overblown, is the tech sector overblown? … When the stock market has a sneeze Bitcoin catches pneumonia and that’s a bit what we’ve seen over the past couple of weeks.
“Is it existential? No. Is this very similar to what we’ve seen repeatedly over the last couple of years? Yes. Why would this time be different? There’s nothing that I can see which says this is going to be different.”
He said liquidity could be a risk to the cryptocurrency.
“The big thing with Bitcoin now is the liquidity trade. What that means is how much spare money is sloshing around.
“And I think with the combination of the US shutdown, with some concerns around the direction of where the US Fed are likely to go and how easy they’re going to make money through conditions, probably the big risk factor is does liquidity dry up? But that goes counter to absolutely everything that Donald Trump wants to do. And he’s going to bully his way, I think, to get the opposite impact. So that’s why I remain confident.”
Trump has been a supporter of cryptocurrencies since he took office again.
“From a markets perspective, I remain confident that Donald Trump will do everything in his power to boost global, to boost financial markets, whether that be the stock market, whether that be Bitcoin. He’s got a real desire and he sees that the financial markets are a true kind of judgement on his presidency. And that gives me confidence that the White House will continue to step in as and when necessary.”
Experts say having a Bitcoin proponent in the White House is likely to put a floor under its price. AFP / Jim Watson
Muhammad Cheema, a senior lecturer in finance at Otago University, said Bitcoin was originally promoted as a safe haven asset but had never behaved like one.
“In fact, Bitcoin has proven to be even riskier than the stock market. For instance, in one of my papers … we find that ‘Bitcoin moves in tandem with stock market losses and does not serve as a safe haven during Covid’. During the early days of the Covid-19 pandemic, Bitcoin lost almost 46 percent of its value on a single day – March 12, 2020, while the S&P 500 fell by about 10 percent on that day. This clearly shows that Bitcoin is an extremely risky and speculative asset.
“Like most speculative assets, Bitcoin’s price is driven primarily by investor sentiment. Traditional assets such as equities have fundamental value because they represent ownership in firms that generate income. Bitcoin, by contrast, has no underlying cash flow; its value depends almost entirely on market perception. Many investors implicitly rely on the greater fool theory – the belief that an asset can be sold at a higher price to someone else. Investor sentiment is currently weak due to economic uncertainty, geopolitical risks, trade tensions, and broader market volatility.”
Alex Sims, a professor in the University of Auckland law school, said Bitcoin’s price was still up significantly over a longer period.
“The current price is actually just under what it was a year ago. But in the past 12 months it fell, then rose and now has fallen again. However, Bitcoin is significantly higher than it was two years ago. These price movements are typical of Bitcoin.”
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– Published by EveningReport.nz and AsiaPacificReport.nz, see: MIL OSI in partnership with Radio New Zealand