The recent bullish run by bitcoin and other cryptoassets are cause for celebration, but should not lead to the repeating of mistakes from past bull markets.
With bitcoin continuing its upward swing toward the end of 2023, recently hitting $44,000, the mood and sentiment has turned more optimistic, and correctly so. In a year that saw the trial and conviction of Samuel Bankman-Fried on multiple counts, the admission of guilt by Changpeng Zhao and Binance on criminal charges, and multiple lawsuits filed by the SEC against the space, the recovery in bitcoin prices is seen as a welcome bit of good news. When combined with the growing speculation that a bitcoin spot ETF is due to be approved in the short-term, market sentiment has turned decidedly positive as 2023 comes to a close.
Even as these good headlines and coverage permeate the media landscape, however, there are significant challenges that remain for the space to overcome. These include, but are not limited to the 1) continued antagonistic position that the SEC seems to take on every crypto and crypto-adjacent issue, with the exception of Commissioner Peirce, 2) a sluggish U.S. legislative environment, compounded by the news that Patrick McHenry is not seeling re-election, that has left rule-making in the hands of the SEC, and 3) an accounting and auditing rule-making environment that has only produced minimal guidance for firms seeking to use and/or provide advisory services around crypto. BitcoinBTC is certainly a bright spot as the year comes to a close, but significant challenges remain for bitcoin to achieve mainstream adoption and acceptance.
Let’s take a look at how optimistic crypto investors and hodlers can balance this excitement to hopefully avoid falling victim to the same issues that tripped investors up during previous bull runs.
Stick To The Investment Thesis
As widespread as the investing thesis of buy-low, sell-high may be, this not always the case in reality. Seeing prices continuously rising can cause serious fear-of-missing-out in investors, causing buyside volume to track the upward moves in prices; this is not the tactic for successful wealth creation. Even though cryptoassets, including bitcoin, operate differently at a fundamental level from fiat-based instruments, crypto still represents a financial asset class and operates as such.
For long-term bullish investors in crypto, this might be a tempting time to double down on your investment amounts, re-allocate funds, liquidate other positions, or otherwise take dramatic actions. Tempting, but a strategy that can lead to unintended consequences (unplanned for taxes if liquidating other positions is necessary), throw allocation strategies out of balance leading to an overweight position in crypto, and might leave investors exposed to any pullback in price levels.
Remember The Last Bull Market
The most recent bull run in that peaked in April 2021, in hindsight, provided a convenient smokescreen for bad behavior. Setting aside the scandals at FTX and Binance that did eventually come to the forefront there were several other negative trends that took hold and thrived during this period. Fueled by a belief that bitcoin was set to continue rising, individual investors (well documented on social media) completely upended lifestyles, investment plans, and work arrangements to participate in the rally. The financial wreckage that followed as prices sank from all time levels soured individuals, and more importantly regulators, on the entire sector which at least indirectly has led to the heavy-handed approach taken by policymakers since.
Non-fungible tokens were also a product of the last bull run that were co-opted and twisted through the lens of endless price appreciation. NFTs have tremendous value and functionality with the ability to 1) serve as a conduit between the physical and virtual worlds, and 2) allow individuals and companies to better control, monetize, and participate in the ever-growing digitization of personal and professional life. These opportunities continue to be overshadowed by the memories of speculative projects, scams, and prices paid for NFT artwork that were sold for multiples above what the market should have allowed.
Last but not least the dramatic increase in prices provided fertile ground for scammers and other bad actors to fleece new crypto investors out of savings and commit fraud of all kinds. Investors would be well-advised to appreciate and enjoy the run-up that is occurring, but to not forget that price appreciation, by itself, is not always a net positive for the space.
Focus On Fundamentals
Following the dramatic dip in prices the narrative around blockchain and tokenized assets seemed to undergo a dramatic shift. No longer just the realm of individual investors, libertarian communities, and the fringes of the financial community, major TradFi players and governments have embraced these technologies. HSBCHBA, Citi, Deutsche Bank, and JP Morgan are just a handful of the global banking behemoths that have implemented blockchain and tokenized payment rails following the last bull market. Blackrock, with its nearly perfect record with ETF approval, has thrown its hat into the ring to launch a spot bitcoin ETF following SEC approval.
At the same time, policymakers in the United States and abroad have all embarked on more comprehensive conversations and debates around how, not if, blockchain and tokenized assets should be integrated within payments and financial market structures. As frustrating as some of these hearings and policy conversations can be, this is part of the maturation process that crypto advocates have long been seeking. Losing sight of this and returning to purely focusing on price threatens to undermine the progress that has been made related to institutional adoption and policy debates.
Price appreciation and increased adoption of bitcoin and the wider cryptoasset space is something that should be celebrated, but at the same time investors should be wary of repeating past mistakes.
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