A Black Friday for Bitcoin
By Crystal Kim
After riding a gravy train for a year now, bitcoin investors got a pre-Christmas visit from anti-Santa Krampus.
On Friday, the price of bitcoin plummeted more than 25%, to as low as $11,000—before bouncing back and finishing up on the day. And it wasn’t the only cryptocurrency that took a beating. Bitcoin cash was cut in half, to around $1300, while ethereum and litecoin took a greater than 30% tumble, to around $500 and $170, respectively.
If there was a major crypto asset that was immune to the selloff, we couldn’t find it. Even Bitcoin Investment Trust (GBTC), which only recently traded at double its net asset value, momentarily changed hands at more than a 5% discount to its NAV.
Pinpointing an exact reason for the plunge in perma-volatile bitcoin is a fruitless endeavor. The selloff came on the heels of one cryptocurrency innovator’s decision to sell his entire position in litecoin and concerns about possible front-running of bitcoin cash by employees of cryptocurrency exchange Coinbase. Then there was the manic speculation around LongFin (LFIN) and Long Island Iced Tea (LTEA), which said it would change its name to Long Blockchain. Both saw their stocks go to the moon and back.
But don’t count bitcoin out just yet. Fundstrat Global Advisors’ managing partner and head of research Thomas Lee, for one, contends that bitcoin is still in a long-term bullish trend and calls it a millennial play as young investors gravitate toward cryptocurrencies, over say, gold.
“Bitcoin was $10,000 two weeks ago,” Lee says. “Just because something is in a bullish trend doesn’t mean it keeps going up.” He is staying with his 2022 year-end price target of $25,000. He also raised his mid-2018 target to $20,000 from $11,500.
Even some bitcoin bears aren’t ringing the death knell just yet. “There is a fundamental problem in trying to pick a bottom for bitcoin,” wrote Rafiki Capital Management’s Steven Englander in a note published Friday. “The fundamental value of bitcoin only depends on what the next buyer is willing to pay.”
At the same time, some boosters are suddenly getting cold feet. Michael Novogratz, a former Fortress Investment Group macro trader, reportedly paused plans to launch a cryptocurrency hedge fund and predicted a bitcoin drop to $8,000.
The greater concern may be what the selloff says about the fledgling cryptocurrency exchanges. Coinbase, one of the largest bitcoin exchanges in the U.S., temporarily halted trading amid the rout around 11 a.m. EST. “Due to today’s high traffic, buys and sells may be temporarily offline. We’re working on restoring full availability as soon as possible,” the company said in a statement. Trading resumed hours later.
Even when Coinbase is operating without halts, it takes days for withdrawals to appear in user bank accounts, though the exchange attributes the lag to banking platforms. Be that as it may, you don’t see Bank of America (BAC) and JPMorgan Chase (JPM) turning away customers trying to retrieve their money—just because of high traffic.
In every bloodbath, there is an opportunity to buy. Sure, bitcoin is one possibility. It may yet resume its climb to the stratosphere. In the context of its 1,400% gain in the last year, a 25% correction seems insignificant.
But a better one might be the stocks of semiconductor companies that make the chips and equipment needed to mine bitcoin and other cryptocurrencies.
“All these folks are getting shanked on bitcoin,” says Rhino Trading Partners’ Michael Block, who sees his opportunity in the collateral damage in semiconductors.
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