Thomas Lee Presents a Strong Case for Holding Bitcoin
Bitcoin prices have tumbled this week and are down 60% from their record highs, but that shouldn’t dissuade long-term investors from giving up their holdings. New evidence from Fundstrat Global Advisors suggests the next upsurge in the digital currency will be huge.
One of the Best Reasons to Hold Bitcoin
Investors on the fence about selling their bitcoin should know that the vast majority of the digital currency’s gains come over a handful of days, according to Thomas Lee, who heads Fundstrat’s research department. By comparison, failing to hold stocks through the best ten days for the S&P 500 would still net you an annualized return of 5.4%. That’s more than half of the 9.2% return you would have earned had you held them through the strongest stretch of the year.
According to Lee, “the reason ‘buy and hold’ (or HODL) makes sense for BTC is that a handful of days each year account for the bulk of gains for BTC.”
“The mood in crypto is terrible right now,” Lee told CNBC in a recent interview. “Long-time holders are worried because they have big gains and they’re worried about falling prices. But bitcoin is a great store value. It works really well. It’s kind of boring, because it’s not the latest and most exciting project. But it also is one of the most liquid ways to get exposure to crypto.”
Although some have warned against comparing the decades-old stock market to the newly invented bitcoin, Lee’s analysis is an important reminder of just how quickly the market can change.
Cryptocurrencies as a whole have declined sharply this quarter, giving up more than 60% of their record highs in January. However, the asset class is still up more than 1,100% over the past 12 months.
On bitcoin, Lee and others continue to maintain an end-of-year price forecast of between $20,000 and $25,000.
Bitcoin: The Non-Correlated Asset
Bitcoin has been described as having unique price independence when compared with other financial assets. An influential whitepaper by Ark Invest released in 2017 made a strong case for this assertion using a standard measure of how assets move together. In general, assets that are more negatively correlated offer stronger diversification benefits.
This analysis proved that bticoin’s price movements are generally “separate and distinct” from other asset classes over a six-year period. In fact, bitcoin was the only asset found to maintain consistently low correlations with other assets. The paper concluded that allocating a small portion of one’s portfolio to bitcoin could provide a good shield against cyclical risks tied to stocks, bonds and other financial assets.
Although nobody is talking about bitcoin’s risk-adjusted performance amid the latest downtrend, the coin’s fundamental outlook remains remarkably steady when compared with the recent bull market. New developments in the Lightning Network protocol have also boosted confidence in bitcoin’s potential as a scalable payment platform. For many, BTC-as-payment could be the next major catalyst for the bull market.The newest version of Lightning went live earlier this month, possibly paving the way for faster and cheaper transactions.
Disclaimer: The author owns bitcoin, Ethereum and other cryptocurrencies. He holds investment positions in the coins, but does not engage in short-term or day-trading.
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