Things could get worse for Bitcoin before they get better
- Bitcoin (BTC) was recently destroyed in recent comments from Berkshire legends (BRK.A, BRK.B) Warren Buffett and Charlie Munger.
- So far, Bitcoin is not an inflation hedge.
- So far, bitcoin has only gone down with the markets. Now is not the time to buy.
Down 43% from its all-time high reached last November, the fate of Bitcoin (BTC-USD) continues to polarize investors.
Over the weekend, Bitcoin came under fire from legendary investors Warren Buffett and Charlie Munger who explained in detail at their holding company’s annual meeting, Berkshire Hathaway (NYSE:BRK.A, BRK.B), why they do not like the largest digital asset in the world.
“Whether it will increase or decrease next year, or in five or ten years, I don’t know. But the one thing I’m pretty sure of is that it’s not producing anything,” Buffett said when talking about Bitcoin. “There is magic and people have attached magic to a lot of things.”
Munger was a little more blunt in his assessment, saying, “In my life, I try to avoid stupid and evil things and make me look bad compared to someone else – and Bitcoin does all three. “
Hedge against inflation?
Buffett and Munger’s negative comments come as Bitcoin struggles to stay above $40,000 per piece in recent weeks. Year-to-date, BTC is down 19% and is currently trading at just under around $38,500.
It hit an all-time intraday high of $68,000 per coin last November, but has since trended lower with the broader stock market. Analysts have noted that the crisis of recent months dispels the previous view that Bitcoin is a hedge against inflation and the equivalent of digital gold. With inflation hitting a 40-year high in the US, the price of BTC fell along with stocks.
In a recently released outlook on the state of the entire cryptocurrency industry, investment banking Morgan Stanley (NYSE:MRS) said Bitcoin’s market capitalization growth over the past year has generally tracked global M2 money supply growth, and BTC’s growth has been largely fueled by the central bank’s accommodative monetary policy. .
Morgan Stanley went on to say that Bitcoin has had a strong correlation with stocks since the start of 2020 and almost zero correlation with gold. Overall, cryptocurrencies have been more correlated with US media and entertainment stocks, as the two could be driven by similar catalysts, Morgan Stanley said in its report.
Despite naysayers, bitcoin adoption continues to grow around the world, albeit with mixed results. Panama recently announced that it is following fellow South American El Salvador and adopting BTC as legal tender. However, while El Salvador was one of the first countries to adopt BTC as a currency, recent studies show that this decision did not produce the expected benefits.
A study by the National Bureau of Economic Research in Cambridge, Massachusetts, found that more than 60% of Salvadorans dropped the government bitcoin wallet after using the $30 bonus they received, 99% of people never paid taxes with BTC as expected and 60% of citizens did not download the Bitcoin app. Additionally, the majority of Salvadorans have never used an encrypted ATM installed throughout El Salvador.
At the same time, new data from the search engine Google (NASDAQ:GOOG, GOOGL) indicates that retail investors are loss of interest into Bitcoin as the price of the digital asset continues to crash. Online search data from Google Trends shows that global Bitcoin searches were flat in mid-2020 as of April 22 this year.
Internet searches for Bitcoin information have plummeted since peaking in May 2021, according to Google. This shows that interest in BTC among individual investors is decreasing. The countries with the highest online searches for BTC are Nigeria and El Salvador. The drop in interest could portend further declines in the price of Bitcoin in the future.
Do not buy Bitcoin at this time
Bitcoin is no longer the shiny shiny cryptocurrency on the block. Interest in owning the digital coin or using it for day-to-day financial transactions is waning among people around the world. At the same time, the theory that Bitcoin is digital gold and inflation protection has been debunked.
Currently, BTC is trading almost at the same rate as stocks. And as the markets go down, so does Bitcoin. Throughout its history, Bitcoin has always been a speculative investment and a risky bet. But in the current environment, with its price steadily falling, that speculation and risk has been amplified. As such, investors should stay away from this digital coin for now. Right now, BTC is do not A purchase.
As of the date of publication, Joel Baglole held a long position in MS. The opinions expressed in this article are those of the author, subject to InvestorPlace.com publishing guidelines.