While most investors in the UK have been concentrating on the ongoing Brexit saga, over the past few weeks, something has been brewing in the world of cryptocurrencies.
After the Bitcoin price crashed from $14,000 to under $4,000 last year, wiping out tens of billions of dollars in wealth in the process, in 2019 it has staged something of a comeback.
Off the lows
After printing a low of $3,175 in mid-December last year, at the time of writing Bitcoin is changing hands at around $3,970.
Technically, after this rally, the cryptoasset is now in back in a bull market. An asset is said to be in a bull market when the price has increased by 20% or more from its most recent low. Bitcoin is up 25% at the time of writing from its mid-December low, putting it firmly back in bull market territory.
But does this mean that it is time to buy the cryptocurrency ahead of further gains? Today I’m going to try and answer this question.
What does the future hold?
Trying to determine what the future holds for Bitcoin isn’t easy. As I have said many times before, one of the big problems with the cryptocurrency is the fact that it does not generate cash flow, and therefore is very difficult to value.
Because Bitcoin and virtually all other cryptocurrencies do not produce any value, they are only worth as much as someone else is willing to pay for them.
That being said, the very fact that the price of Bitcoin has recovered from its low and is heading higher, suggests that demand for the cryptocurrency is rising once again. With the price of the coin reflecting demand, a rising price suggests there are more buyers than sellers in the market.
The fact that the Bitcoin price has remained stable since November of last year adds to the conclusion that demand for the cryptocurrency is rising again. Indeed, a big problem with it has always been the fact that its price is relatively unstable, which makes it difficult to use in everyday transactions. For example, not many people would want to use the pound if its value regularly moved by as much as 10% every day.
Further gains ahead?
I think all of the above points to the conclusion that Bitcoin is making a comeback, and the price could rise even further from current levels as the bull market gains traction.
However, I remain sceptical that Bitcoin can never make it into the mainstream, and for this reason, I am not buying into the new bull market. Personally, I would rather invest in companies that stand to make a lot of money if cryptocurrencies take off because it is easier to place a value on businesses that are generating cash flow, rather than a speculative asset.
So, if you have been waiting for the Bitcoin price to bottom before buying back in, with the price up 25% from its recent lows, it looks to me as if now could be the time to buy before it rises further, if you really believe in the Bitcoin story, that is.
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Rupert Hargreaves owns no share mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.