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Virtual Currency

Is Bitcoin’s Wild Ride Over?

Few asset classes are more exciting – or more terrifying – than cryptocurrencies.

And the wild action we’ve watched play out over the past month perfectly illustrates this.

Janet Yellen, the former Federal Reserve chair and current Treasury secretary, recently sparked panic.

At her confirmation hearing, she suggested lawmakers look for ways to curtail the use of Bitcoin. In her view, cryptocurrencies are mainly used for illicit financing.

This sucked the wind out of Bitcoin’s eyebrow-raising 2021 rally.

Bitcoin Price Chart

The cryptocurrency tumbled 20% over two days and dipped below $30,000, its lowest level since January 1. And at the trough of the sell-off, Bitcoin had shed 31% from its all-time high of $41,940.

Of course, panic and confusion set in.

The questions of the moment: Is this an opportunity to buy the dip? Is this the end of the rally? Did I miss Bitcoin’s run once again?

The Kiss of Death?

Here’s the deal…

Yellen’s recent comments are nothing new.

The Treasury secretary is notoriously “not a fan” of cryptocurrencies.

Back in 2017, in the waning days of Bitcoin’s last massive rally, Yellen said Bitcoin wasn’t “a stable store of value, and it doesn’t constitute legal tender.”

She also called it a “highly speculative asset” – which is undeniably true. Maybe less so now than three years ago… but come on…

We all know that cryptocurrencies are extremely volatile, and sometimes the reasons for their moves aren’t exactly clear.

Then in 2018, Yellen stated that many Bitcoin transactions are “illicit, illegal transactions.” The Department of Justice (DOJ) shares this view. And the Cyber-Digital Task Force called the use of cryptocurrencies by terrorists and cybercriminals “the first raindrops of the coming storm.”

Now, it appears this report has since been removed from the DOJ’s website.

But Yellen’s views aren’t anything we haven’t already heard from mainstream investors or financial outlets for years. In fact, this isn’t anything she hasn’t said before in hearings and press conferences.

This skittishness in the crypto space is one of the reasons the asset class is so volatile.

Keep Calm and Carry On

I talk to many investors who simply don’t invest in Bitcoin because it’s too volatile.

And if you can’t stomach routine one-day drops of 10% or more, then cryptos aren’t for you.

The 13.76% drop we saw in Bitcoin on January 21 was the largest decline year to date. This outpaced the 4% drop on January 4, the 6% drop on January 15 and the 9.76% drop on January 11.

But Bitcoin has also had five days in 2021 where its price rose 6.69% or more.

And the 13.76% drop was basically half of the largest one-day drop Bitcoin has suffered over the past year. On March 12, 2020, the cryptocurrency collapsed 27%.

Bitcoin kicked off 2021 with an extreme rally that sent the digital currency blowing past my price target for the year. The crypto gained 45% in a little more than a week to start 2021. And from December 1 to January 9, it gained 113%.

Bitcoin Price Chart

It was due for a correction.

It just needed a catalyst.

The rumors that former Treasury Secretary Steven Mnuchin would use his final days in office to crack down on Bitcoin weren’t enough.

So it found one in a familiar villain.

As I outlined back in November, I believe Bitcoin – and the rest of the crypto universe – will continue its bull run in 2021. But like every move higher in this space, it won’t be a smooth incline. The road will be full of twists and turns, potholes and speed bumps. Some of those will be self-made by crypto investors. Others will be created as the world digests the potential for digital currencies and blockchain.

I’m not a religious zealot who strictly adheres to the “hold on for dear life” tenet, meaning I stay put regardless of its moves up or down.

I’m just rational enough to accept and expect the volatility that we’ve seen… and to use it to my advantage.

Here’s to high returns,

Matthew

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