The Stock Market Is Falling. Is Bitcoin the Answer?


There’s a lot of uncertainty in the stock market right now. The COVID-19 pandemic’s latest wave is causing fresh sets of shutdowns around the world. Despite widespread acceptance of the results of the U.S. election, troubling undercurrents reveal a substantial minority that’s thus far refused to acknowledge the normal succession of power. Although some businesses are well prepared for volatility, others have used up their margins of safety and are up against it.

It was therefore no surprise to see stock markets give up ground on Friday. But what’s interesting is that investors looking for an alternative have decided that bitcoin could be the solution. So far, the cryptocurrency market has met the challenge, but can bitcoin prices keep soaring? Despite widespread cynicism about crypto tokens, many prominent investors think the answer to that question is yes.

Bitcoin symbol superimposed on a chart.

Image source: Getty Images.

How the market fared on Friday

For much of Friday’s session, the stock market held its own nicely. But toward the end of the day, major market benchmarks gave up ground. That led to losses for the Dow Jones Industrial Average (DJINDICES:^DJI), S&P 500 (SNPINDEX:^GSPC), and Nasdaq Composite (NASDAQINDEX:^IXIC), although they were all modest at 0.75% or less.

Friday’s stock market

Index

Percentage Change (Decline)

Point Change

Dow

(0.75%)

(220)

S&P 500

(0.68%)

(24)

Nasdaq Composite

(0.42%)

(50)

Data source: Yahoo! Finance.

Bitcoin approaches new highs

Even as the stock market fell, bitcoin continued its amazing ascent. The price of the premier crypto token touched $10,000 as recently as early September, but since then, it’s up 85%. Just in the past month, bitcoin prices are up by more than half, and Friday afternoon’s price of around $18,500 represented its best level since it soared to nearly $20,000 in late 2017.

Already, bitcoin has eclipsed some of its old records. Because of the amount of cryptocurrency mined in the past three years, the total market capitalization of available bitcoin has never been higher. The amount of bitcoin held in the Grayscale Bitcoin Trust (OTC:GBTC) is at all-time records, as is open interest on bitcoin futures and options contracts.

Some of those gains have come as institutions have poured into the market. Institutional investors are putting plenty of money into cryptocurrencies. Square (NYSE:SQ) recently spent $50 million on bitcoin.

Yet there’s another metric that speaks to the adoption of bitcoin more broadly: The number of wallet addresses with a bitcoin balance worth $10 or more has never been higher, according to Coindesk. Moreover, that likely doesn’t include those who own interests in cryptocurrencies through services like Robinhood and PayPal Holdings (NASDAQ:PYPL), as they don’t support separate wallets for investors to hold their bitcoin and other crypto holdings.

The easy gains are already here

With all the uncertainty surrounding the election, the economy, and the pandemic, bitcoin’s move to challenge its old record highs was as easy as it would ever be. In fact, if bitcoin hadn’t made this move, it essentially would have shown investors that the cryptocurrency wasn’t suitable for the purposes for which most investors held it.

Now, though, the big question is what happens next. There are plenty of outlandish calls for bitcoin to reach $100,000 or even $1 million per token in the not-too-distant future. Meanwhile, others believe that the price could stay near current levels for a while, while of course still others foresee another of bitcoin’s infamous 80% to 90% drops to leave new investors holding the bag. Just like the stock market is volatile, bitcoin investors should expect big ups and downs in the future.

Yet investors looking for an alternative to the stock market might not get everything they need from investing in bitcoin. Although some new bitcoin lending services offer interest on bitcoin holdings, cryptocurrencies held in traditional wallets don’t generate income. Those looking for growth must rely on price appreciation. And while the long-term trend has been up, there have been long periods when selling bitcoin for cash would’ve been a painful move.

Keep your eyes on bitcoin

Investing in stocks is still a great way to generate wealth over the long run, even when there’s a lot of uncertainty. After more than a decade of naysayers predicting bitcoin wouldn’t amount to anything, cryptocurrency bulls have had the last laugh. It’s definitely not something you should bet your entire life savings on, but bitcoin and other cryptocurrencies are likely here to stay — no matter what happens to their prices in the coming weeks and months.





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