For Bitcoin’s most loyal adherents, the long-touted milestone of 100,000 dollars seems closer than ever. The catalyst? America’s debt crisis and, curiously, the possibility of Bitcoin joining the U.S. strategic reserves. This speculative fuel has come from a new alliance: Donald Trump, bidding for the White House again, has a surprising new partner in Elon Musk, who has labelled America’s 35 trillion dollar debt a “financial emergency.” Musk’s solution? Bitcoin could help “wipe it out.”
Meanwhile, the imminent exit of SEC Chairman Gary Gensler—whom Trump has promised to replace—has cheered crypto enthusiasts who have long criticized his regulatory approach. For European institutional investors, usually cautious on cryptocurrency, this all might sound like fantasy. But behind the headlines, could there be truth in the hype?
Bitcoin’s faithful have dreamed of 100,000 dollars since its inception. And recent events are moving in their favour. The cryptocurrency shattered previous highs this week, nearing 92,000 dollars and pushing its total market cap to 1.7 trillion dollars. Search engine data shows Bitcoin as the second most popular term globally, just behind “House of Representatives.” For those heavily invested in crypto, the narrative looks undeniably rosy.
“As if, in the age of Trump 2.0, you can no longer pay with other currencies. That is not entirely—or not at all—true given the dollar’s appreciation.”
—Simon Wiersma, ING
Market risks overheating
With crypto optimism rising, so does the risk of an overheated market. “What a little imagination, fancy talk, and leverage can do,” says Simon Wiersma, an investment strategist at ING. “As if, in the age of Trump 2.0, you can no longer pay with other currencies. That is not entirely—or not at all—true given the dollar’s appreciation, which is recording its highest rate in over a year against a basket of other currencies.”
Here on Investment Officer, Bitcoin has often been branded “unnecessary, a fraud, and hot air” by investors who, let’s be honest, aren’t exactly charmed by the crypto world.
The idea that Bitcoin could replace the dollar, or even work alongside it in government reserves, seems fantastical. The U.S. dollar remains strong, with or without digital competition. But for some investors, Bitcoin’s appeal lies less in its practicality and more in its principles.
Diversification
Jeroen Blokland, manager of the Blokland Smart Multi-Asset Fund, is one such investor. His fund holds a 10 percent allocation in Bitcoin—not for the hype, but for the diversification it brings to his portfolio.
“What about that massive amount of euro dollars and debt in that currency? What’s underneath it again? Confidence in the system.”
—Jeroen Blokland, Blokland Smart Multi-Asset Fund
Blokland’s view offers insight into why some institutions remain cautious: they struggle with an asset that doesn’t produce cash flow, often a dealbreaker for clients. But Blokland has an answer for them: “What about that massive amount of euro dollars and debt in that currency? What’s underneath it again? Confidence in the system,” he says.
He compares Bitcoin to gold, calling it “a digital asset with the bonus that if you accept Bitcoin as value because of its characteristics, you can do a transaction and transfer value (settlement) all at once. That is just a little more difficult with gold.”
The argument is persuasive: like gold, Bitcoin could serve as a hedge against risks tied to government currencies. But its volatility remains a big concern.
Since 2020, Bitcoin has thrown investors onto a rollercoaster: at least one week with a brutal 40 percent drop and four more with losses topping 20 percent. But it’s not all negative—Bitcoin has also had one spectacular week with a gain over 30 percent and another dozen weeks posting gains above 20 percent. Meanwhile, the S&P 500, by comparison, rarely moves beyond a 10 percent gain or 10 percent loss in a single week.
When good times are too good
In Washington DC, word is that Dan Gallagher, the chief legal officer of trading-app Robinhood, is set to take over as SEC chair. A former SEC employee, who knows Gallagher and wishes to stay anonymous, says the nomination is a done deal.
If Trump fires Gensler and installs a new SEC chief, crypto fans see someone likely to support fewer restrictions and possibly fewer enforcement actions. But would these changes make Bitcoin, or any other crypto asset, safer? The blockchain may be secure, but what about the investments supporting it?
Whales and correlation
Let’s not forget the ‘whales’—those few big Bitcoin holders who dominate supply and, with a single move, can shake up the entire market. The top 113 accounts, each holding over 10,000 Bitcoin, together control more than 15 percent of all circulating supply, around 3 million BTC, according to Investopedia.com.
But Bitcoin isn’t alone with this concentration problem. Think of Bernard Arnault’s, who owns half of LVMH, or Mark Zuckerberg’s power over Facebook—proof that when a few hold the reins, everyone else feels the sway.
On the bright side for Bitcoin investors, crypto’s historical lack of correlation with traditional assets makes it a tempting addition to a diversified portfolio.
But here’s the catch: the 40-day correlation coefficient between the largest 100 digital assets and the S&P 500 now sits around 0.67—a level only exceeded in the second quarter of 2022, when it reached 0.72, according to Bloomberg. In other words, crypto may be moving a bit more closely with traditional markets than some investors would like.
Speculation, speculation everywhere
Then there’s the issue of intrinsic value. Bitcoin’s critics regularly point to its lack of income or tangible assets—a fair criticism if it didn’t apply to so many other assets. Plenty of investors hold stocks where much of the value comes from brand goodwill and intellectual property—more “smoke and mirrors” than anything concrete.
You can’t value Bitcoin in traditional terms, true. But the same goes for many other widely accepted asset classes where speculative bubbles form regularly. Bitcoin often gets labeled the “greater fool” investment—it’s worth only what the next person will pay for it.
So, if you’re joining this wild ride, be prepared. Bitcoin may indeed touch 100,000 dollars—but brace yourself for the rollercoaster descent that could follow. We’ve seen high hopes before, only for reality to remind us that no asset class, digital or otherwise, is a one-way ticket to wealth.