Two years ago today, Bitcoin hit its highest price ever, reaching $19,783. It was the culmination of an incredible year for the digital currency, which had started 2017 at about $1,000. Since hitting its peak, however, Bitcoin has fluctuated wildly. It fell 73% in 2018 and has risen 85% this year—but has not come close to retesting its previous highs. On Tuesday, it was trading near $6,500.
An investor who bought at the start of 2017 would still be up more than 500%, dwarfing the S&P 500’s 43% gain over that period. People who held Bitcoin for the entire period clearly did well, though one adviser found that Bitcoin has been a much trickier trade over shorter time spans during this period. Dan Wiener, chairman of Adviser Investments and founder of the Independent Adviser for Vanguard Investors, analyzed Bitcoin’s price movements since the start of 2017 and found that the average five-day rolling return for Bitcoin was 1.5%.
The range of five-day gains and losses, however, was enormous, with a high of 47% and a low of negative 29%. “By my calculations investors lost money 45% of the time when they held Bitcoin for 10 days,” he wrote in an email on Monday. Wiener is clearly not a fan, writing that Bitcoin is for “traders disconnected from the real moneymaking potential of stocks.”
Beyond the price action, what has changed for Bitcoin in the past two years? On the one hand, it’s more widely embraced by institutions than ever, with NYSE-owner Intercontinental Exchange (ICE) offering Bitcoin futures and custody services and Fidelity also servicing institutional investors. But its market cap remains too small to attract the big money—the world’s top banks remain on the sidelines, and many of the retail investors who had bought in near the top have stayed away.
The biggest change in the past two years is arguably that Bitcoin’s “competition” has changed. Two years ago, the cryptocurrency market was awash in initial coin offerings (ICOs) that launched new digital currencies that promised to decentralize various industries, from social media to cloud computing. Investors expected one or more of those coins to break out to challenge Bitcoin’s dominance. But none of them have taken off since. Bitcoin still accounts for 67% of the market value of cryptocurrencies, according to Coinmarketcap.com.
Bitcoin’s real competition now comes from two areas—corporations like Facebook looking to use the blockchain technology that undergirds Bitcoin to create their own currencies, and governments that want to create digital coins backed by their own treasuries.
The question now is: Will the most important digital currencies be decentralized like Bitcoin, corporate-backed like Facebook’s Libra, or government-controlled, like China’s cryptocurrency plans? barrons.com