Over the past year, thanks to a formidable post-halvage bull run, bitcoin has occupied a prominent place in the portfolios of retail investors, but the black week that began with Musk’s reversal and continued with the PBOC, ECB and US Treasury’s blows has sent the price plummeting, with intraday lows just above $30,000. So, given the latest news, should we continue to bet on the currency? Société Générale analysts answer.
Is it worth keeping bitcoins in your wallet?
This question follows the violent price movements of the currency, which after breaking record after record thanks to halving, traditional finance openings (see Tesla or PayPal) and endorsements from major US banks and hedge funds, collapsed on Black Wednesday to an intraday low of just over $30,000, recovering some of the ground lost only in the last few hours.
Paradoxically, it was a thoroughbred bull like Elon Musk who caused BTC and other altcoins, from Ethereum to Ripple’s XRP, to falter and then collapse, with his reversal on crypto payments for Tesla cars, but also the Pboc-BCE banking front and the US Treasury, with a halt to virtual currency services and new attacks on illegal transactions and tax evasion.
But volatility, which exploded last week with double-digit daily variations, is nothing new, and has accompanied BTC even in the bullish cycle inaugurated after the stock market sell-off last March, at the height of the first pandemic wave. So much so that analysts at French bank Societe Generale (SocGen) questioned whether retail investors should continue to diversify their portfolios with the Nakamoto token. They also questioned whether retail investors should continue to diversify their portfolios with the Nakamoto token and, if so, whether they should turn to gold, boosted in recent days by the risk of inflation and dollar weakness.
Should you hold bitcoin in your portfolio? What analysts say
SocGen’s verdict is bitter: not only does bitcoin remain a “highly controversial topic, not least due to the erratic evolution of its price”, but the downside of the cryptocurrency continues to outweigh the bullish factors, such as the rate of adoption by institutions, the halving in record time and the possibility of the upcoming launch of a dedicated exchange-traded fund (ETF).
According to analysts, the downward pressure could yet come from central banks, and not just China’s Pboc, which has in fact already broken the cryptocurrency branch with ad hoc measures long ago, in 2017. From the ECB and the Fed – in the US, the US Treasury is also coming down hard on crypto, claiming it “facilitates illegal activities, starting with tax evasion” – the threat is that of eventual regulation, which could put an end to digital currencies’ crowdfunding season and impact trading volumes.
SocGen also mentions the Musk factor, namely those “confusing” tweets the tycoon has been dropping on the net, driving up (and lately deflating) asset prices, from BTC to Dogecoin. Musk is unpredictable, and regulators seem to have their weapons blunted by lax US laws: all the smoke on the market is likely to make prices even more volatile.
Gold is the best portfolio stabilizer
These considerations lead SocGen to dismantle the narrative that sees bitcoin as a kind of digital gold, i.e. a safe-haven asset to protect against stock market jolts or unfavorable economic cycles. In terms of volatility, and therefore the scale of price movements, the comparison doesn’t hold: bullion is at -1.2% since the start of the year, while BTC is still up 38% despite the collapse.
Gold, on the other hand, could be on the verge of a new uptrend, given the risks on the inflation front and the weakness of the greenback, and remains the portfolio’s best stabilizer, even able to (partially) offset losses on bonds in times of rising inflation.
