Wednesday's Market Minute: Why I'm Watching Bitcoin

Bitcoin has slowed its roll since approaching the all-time high. It doesn't show signs of reversing just yet, but it is having some trouble breaking out through the previous high and that's a notable event.

In an article this weekend in Barron's, historian, professor, and author of financial literacy staple "The Ascent of Money" Niall Ferguson made the bullish case for bitcoin. He, like almost every other bitcoin believer I've spoken with, cited bitcoin's boom-and-bust history, in which every boom brings bitcoin to a higher-high. This is why the next move in bitcoin is so crucial.

Crypto canon states very clearly that bitcoin needs to make a new high in this latest push after 2018's crash. A rejection of 20k would be a major problem for the bullish bitcoin narrative, but it would also be a red flag to stock investors. That's because bitcoin, if nothing else, is still as good a gauge of risk tolerance as any. Even the biggest bitcoin bulls will tell you to always be ready for a 10-20% pullback at any time, and that inherently makes bitcoin a risk asset. In this context, it's not surprising to see bitcoin trying to break through all-time highs at the exact same time the Nasdaq is doing the same.

Bitcoin has a potential use-case as a store of value that may one day detach it from other risk assets (and in my opinion, has become more compelling) – but right now, it belongs in the same camp. If it fails to break out to new highs, it should make tech-stock bulls second-guess their own confidence. This most likely holds the other way around too – if bitcoin does take another leg higher, stocks are likely in the clear, too.

Photo by Dmitry Demidko on Unsplash