High Enough to Buy
US stocks closed lower with the S&P 500 down 0.2%, the Nasdaq 100 losing 0.5%, and the Dow slipping 0.3% on Friday.
Despite the declines, all three indices posted nearly 2% gains for the week.
Trump’s softened stance on tariffs toward China provided some relief, though warnings of potential action against other trade partners kept uncertainties high.
Meanwhile, consumer sentiment declined for the first time in six months amid persistent inflation concerns.
Investors also weighed the Fed's likely decision to hold rates steady next week, as long-term inflation expectations remain anchored.
Institutional traders sometimes say a security is “high enough to buy.” What this refers to is the bullish momentum of the security is indicating a favourable outlook and the risk/reward appears increasingly attractive.
Bitcoin may be high enough to buy.
For most of the past 15 years, bitcoin has faced high investor scepticism and extreme volatility. Bitcoin exchanges have failed. Bitcoin has been used by criminals. In the past, investment thought leaders like Jamie Dimon (CEO, JPMorgan Chase) and Warren Buffet (CEO, Berkshire Hathaway) were disparaging of bitcoin. Buffet called bitcoin “rat poison squared.” Dimon has said cryptocurrencies are like “pet rocks” and have no intrinsic value.
Today, if you enter a buy order for a cryptocurrency security at Schwab, you may be served this warning message: “Cryptocurrency based ETF/NS may not be suitable for all investors. They may subject the fund to greater volatility than investments in traditional securities and involve substantial risks, including loss of a significant portion of their principal value.” Then again all investors know there is risk of loss in any investment and past performance is not an indication of future performance.
Bitcoin is evolving. Market leading firms like Fidelity and iShares (Blackrock) have launched bitcoin exchange traded products (FBTC and IBIT, respectively) last year. The size and reputation of the firms now involved with bitcoin have stepped up significantly from the days of Sam Bankman-Fried and FTX Trading Ltd.
With the election of Donald Trump, the regulatory environment for bitcoin improved and the value of bitcoin stair-stepped higher. President Trump said he plans to make the United States the “crypto capital of the planet.”
Like gold, bitcoin has limited supply. The total amount of bitcoins to be made are 21 million and the supply curve is well into the asymptotic stage.
Investors like to own assets that appreciate. Bitcoin fits this description. Importantly, as the stigma and regulatory barriers fall, the institutional demand is developing. Last quarter, the SEC approved exchanges to list and trade options on the ETPs - options ecosystems are really good for markets.
Fidelity is now recommending that client portfolios hold an allocation to bitcoin in the range of 1-5%, depending on the client’s age. The largest broker/dealer/client-advising firms including Bank of America/Merrill Lynch, Goldman Sachs, Wells Fargo and JP Morgan Chase are evaluating recommending client portfolios to hold bitcoin investments.
With high quality bitcoin sponsors like Fidelity and Blackrock offering securities that are traded on the major stock exchanges with daily liquidity and with steady demand from clients, it is probable bitcoin investments will eventually be viewed as just another way to diversify a portfolio with a non-correlated investment.
Bitcoin is a digital asset that has value because people want to own it. It does not create earnings and does not offer dividends or interest. If for some reason demand for bitcoin were to subside, the asset could experience significant downside volatility. As Schwab says, an investment in bitcoin involves substantial risks including loss of principal invested.
Many investors see bitcoin as a hedge against depreciating traditional currency values. With the United States deeply in debt, there is real concern that the U.S. dollar has become more at risk of depreciating over time.