Is bitcoin entering a bear market ?
After the digital currency slid from its record high of $58,000 last Sunday to $47,000 as of Friday afternoon, its biggest weekly loss since a 33.5% decline last March, some skeptics are saying bitcoin is on the verge of falling into, if not already, in a bear market.
Unsurprisingly, bitcoin bulls see the decline as more of a healthy pullback or opportunity to buy the dip.
"We were trading below $20,000 at the start of December, and we rallied almost up to $60,000. Given the size of that move, it's not surprising to see a pullback," Matt Hougan, chief investment officer of the $1 billion Bitwise Asset Management, said in an email interview on Tuesday when bitcoin fell to as low as $45,580.
Hougan, whose firm manages a bitcoin fund, believes that the major driver of this bull market is still in place. Unlike previous bull markets driven by retail participation, this one is being propelled by corporations, hedge funds, financial advisors, and institutions moving bitcoin onto their balance sheets and into their portfolios for the first time.
"We are still in the early innings of that process," he said. "Until it's either complete or disrupted, the underlying thesis remains intact."
Cathie Wood, CEO and CIO of the $60 billion Ark Invest, shares Hougan's sentiment.
"When you think that the market cap or network value of bitcoin is roughly $900 billion to $950 billion. Think about that in the context of an Apple [stock], it's less than half of Apple's valuation," Wood said, speaking on a panel during the Bloomberg Crypto Summit on Thursday.
"Here we're talking about the reserve currency of the crypto asset world, the first global digital monetary system," she added. "It's a very big idea, and now we have institutions embracing this idea."
Bitcoin's market cap surpassed $1 trillion for the first time just a week ago before falling back to around $850 billion as of Friday afternoon.
Wood, whose firm holds more than seven million shares in the Grayscale Bitcoin Trust, believes that the digital token still has "trillions of dollars of market cap potential."
But for more investors to buy in and naysayers to change their minds, bitcoin has to first pass intensified regulatory scrutiny. Treasury Secretary Janet Yellen on Monday said bitcoin is an "extremely inefficient way of conducting transactions" and warned investors of the potential losses from trading the "highly speculative asset."
Speaking on the same panel as Wood, Michael Sonnenshein, CEO of $39.1 billion Grayscale Investments, said he remains hopeful that US regulators will continue to dialogue with the crypto industry.
One particular positive sign is Garry Gensler, President Biden's pick to head the Securities and Exchange Commission. The former chairman of the Commodities Futures Trading Commission taught blockchain and digital currencies at the MIT Sloan School of Management and was known for his deep understanding of market structure and fintech.
But broadly, regulatory attitudes towards bitcoin have already been shifting over the years.
"The fact that we now have tangible commentary and/or policy related to this asset class from the SEC, CFTC, Internal Revenue Service, Financial Crimes Enforcement Network, and Treasury, it does definitely add some validation to the asset class' staying power," Sonnenshein said.
Even bitcoin's regulatory restrictions in China could aid its US regulatory acceptance, according to Wood.
While bitcoin is not outright banned in China, many crypto-related activities are prohibited there. Adding to the complication is the Chinese central bank's efforts to develop its own digital Yuan.
"Bitcoin's blockchain is an open-source technology. And China, mostly for capital control reasons, really wants to limit its exposure and wants its own [digital] currency," Wood said. "I think this is a really important point because open-source technologies, if you're going to isolate your country from all of this innovation, that's a problem competitively."
For all the controversies and scrutiny around bitcoin, investors should remember that the digital currency is still just 12 years old, according to Jan Van Eck, chief executive of the $55.4 billion Van Eck Associates.
"I do think that the volatility of the price does put people off," he said in a Thursday interview. "But what I would say is it's just a young asset. It's increasing its maturity and more people are getting involved with it every single day."
Van Eck, whose eponymous firm has filed and withdrawn multiple applications for a bitcoin ETF in the past few years, applied again earlier this year.
He first spent time studying bitcoin in early 2017 and was immediately impressed by its limited supply, gold-like appeal to investors, and store-of-value nature.
"To be honest, I was not really so excited about the blockchain technology per se, because to me it just seemed like another database technology," he said. "Databases are awesome but bitcoin seemed more evolutionary."
Even back then, Van Eck understood that bitcoin could expect an 80% drawdown given its price swings during previous cycles. Indeed, bitcoin went on a downward spiral after reaching nearly $20,000 in December 2017 and didn't pick up significantly again until last year.
For the past six months though, bitcoin has had a drawdown of 25% to 30%, which could be a sign of its receding volatility, according to Van Eck.
"I think if you're in the 25% to 50% correction range, that's significantly more normal," he said. "I am definitely of the school that as its adoption increases, its price volatility will continue to decrease."
Furthermore, he believes that as its volatility reduces, bitcoin is likely to mature to a level that matches the market cap of gold, which stands at about $12 trillion.
"I don't see why bitcoin's market cap can't be half of that. In history, there have been alternatives to gold like the use of silver, or sometimes platinum, that go back hundreds of years," he said. "A new digital gold can emerge and play an important role, so that would put bitcoin in a $200,000 to $400,000 range."