It's been a wild few days for bitcoin, the cryptocurrency fell on Sunday close to$ 52,000, sharply off its record high of$ 64,800 at the height of last week.
The sell-off was linked to rumors of a common crackdown in the U.S., a regulatory fear for bitcoin investors. But taking step back, this type of move looks likely for bitcoin, according to Ari Wald head of technical analysis Oppenheimer.
Let's put some things in perspective, Wald told CNBC on Monday.
In August, bitcoin suffered a 20% drawdown, a 17% drawdown in November, 31% in January, 26% in February, 18% March, and now is more recently down to 16% by peak to trough. Should be tough for Bitcoin investors to hold on for nine months? Nope! Over the period from the September peak into the recent low, bitcoin is up 315%. Its 12 month chart looks even better; over the past year, bitcoin has increased more than 680%. Day to day this is a very volatile currency and I think that's the most important point here.
It may not be suitable for all investors, though, because there is really no damage to the trend on this, but there's a trade-off between risk and reward. To get the substantial upside reward it has to come with a big downside risk, said Wald.
Nancy Tengler, the chief investment officer at Laffer Tengler Investments, sees a few forces at work in the bitcoin trade. The first, the regulatory risk, has been expected for some time and has come to be telegraphed by investors, she says. The second, a positive driver of sentiment, is increasing adoption. We have limited supply and an increasing demand with companies such as Walmart, Visa, Square, Starbucks even with an app where you can buy coffee using bitcoin. So we know demand is going up, Tengler said in the same interview.
The third is the concentration risk; she estimates that 2.4% of Bitcoin accounts control approximately 95% of the total amount of bitcoin available. It's not just bitcoin that is seeing huge moves in the crypto space: Bitcoin is up 92% this year, while Ethereum, ripple and litecoin have enjoyed rallies in the triple digits.
The meme cryptocurrency Dogecoin is up by an eye-popping 8,282% in 2021.