Crypto Update

Slow and Steady is the Key to a Strong Crypto Asset

Slow and Steady is the Key to a Strong Crypto Asset
By Vin Narayanan
Date December 10, 2020

Slow and steady isn’t necessarily a bad thing — especially in crypto.

Over the last seven days, the price of bitcoin has dropped about $1,000. As I write this, bitcoin is trading around $18,200. And that’s OK. In fact, if bitcoin decides to pitch a tent and camp out around $18,000 for several weeks, that’s OK too.

We’re still early in this crypto bull run. We have a long way to go. And a slow and steady rise is far more sustainable than a meteoric one.

The $1,000 drop we saw this week is most likely the result of some high rolling traders that own lots of bitcoin taking profits. They have so much bitcoin that they can sell enough to move the market — and still own a lot!

The fact that bitcoin hasn’t dropped further is a testament to its newfound and (relatively) broad acceptance as an alternative store of value. There are more investors buying and holding bitcoin for the long term now than there were in 2017 and 2018.

Institutional investors like Fidelity and Grayscale Bitcoin Trust have been snapping up bitcoin left and right. And institutional investors are in it for the long haul. So is MicroStrategy, the business intelligence firm that’s publicly traded on the NASDAQ. 

In July, MicroStrategy revealed it was investing up to $250 million in bitcoin. And this week, MicroStrategy “doubled down” on its bitcoin strategy when it announced it is raising $400 million (through convertible bonds) to buy even more bitcoin.

And Fidelity announced Wednesday it would allow its institutional investors to use bitcoin as collateral for loans.

Bitcoin is an extremely young asset. So it’s naturally volatile. But institutional investors buying up bitcoin raises the floor for bitcoin. When bitcoin falls, it won’t fall as far thanks to institutional support.

And that higher floor, in turn, will attract more retail investors. Retail investors don’t like roller coasters — especially ones they can’t time. And the more investors bitcoin attracts and keeps, the more sustainable the crypto bull market becomes.

So let’s hope bitcoin stabilizes around $18,000 for a while — before cracking $20,000 and soaring even higher. Because it’s slow and steady that wins this race.

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