The cryptocurrency bull market has been on a solid run in 2021 relative to its bull markets in previous years. Bitcoin has been leading the charge once again, coming close to the US$60,000 mark before succumbing to pressure and slipping down as far as US$43,000 at the end of February.
The cryptocurrency has since rebounded and is trading around the US$57,000 mark at writing. Is Bitcoin ready to soar in 2021 and break more records? Or should investors be wary of the world’s most popular cryptocurrency during the current volatile market?
Bitcoin’s recent volatility
Bitcoin has its fair share of proponents, but many influential figures have opposed it. Warren Buffett does not shy away from pivoting to adjust to the changing global landscape when seeking new investments. He even managed to let Berkshire Hathaway buy Barrick Gold shares to capitalize on the bull market for gold prices.
Warren Buffett refers to Bitcoin as little more than “rat poison” and has expressed his displeasure with the non-traditional asset class in several interviews. Other prominent people have spoken against investing in Bitcoin.
Janet Yellen, the former chairwoman of the Federal Reserve and the current U.S. Secretary of the Treasury, has even said that Bitcoin is “extremely inefficient” as an asset class.
With no fundamentals backing the value of the cryptocurrency, comments like these appear to spur quick pullbacks and stimulate volatility in Bitcoin’s performance.
Things that are going well for the cryptocurrency
Bitcoin began gathering momentum in 2020, as mainstream investors began embracing the new asset class. Brokerage firms like WealthSimple have started to offer Bitcoin trading. PayPal is also bringing Bitcoin into the fold. Perhaps one of the biggest reasons that led Bitcoin soaring in 2021 was Elon Musk-led Tesla pouring US$1.5 billion into the cryptocurrency.
Canada has also entered the space and released the first Bitcoin-focused exchange-traded fund (ETF), called Purpose Bitcoin ETF (TSX:BTCC.B). The ETF seeks to track the performance of Bitcoin, and millions of dollars have already flowed into the fund since its launch on February 18, 2021.
Why Bitcoin could be a bull trap
Purpose Bitcoin presents Canadian investors the chance to gain exposure to Bitcoin without owning the asset itself. However, there is a chance it could be a classic bull trap. A bull trap is a false signal that shows a decreasing trend in a stock that has reversed and is heading upwards.
Bitcoin has never been a stable asset. The popular cryptocurrency’s spot price went from US$40,000 to US$30,000 within a month at the start of 2021 before climbing to new all-time highs the next month. Accurately predicting Bitcoin’s trajectory is not possible.
The only good thing going for the cryptocurrency is that it has gained mainstream support. However, it seems to continue to fail to impress Warren Buffett.
Buffett was not always bullish on tech stocks and was late to join the party when he invested in Apple in 2016. However, the tech giant showed immense potential and proved itself to be a company with substantial value. Lightspeed POS (TSX:LSPD)(NYSE:LSPD) could be an ideal investment to consider if you are looking for exposure to a tech stock that could provide you with similarly substantial long-term results.
The Montreal-based company provides commerce-enabling software as a service platform for small and mid-sized businesses like retailers, restaurants, and several other types of businesses. The stock declined amid the overall tech sector downturn and could be considered to be in value territory.
The company possesses an adequate balance sheet and has immense growth prospects due to the changing business landscape after the pandemic. It could make for a far better investment than Bitcoin in terms of providing you with returns that have fundamentals backing its value.
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This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.
Fool contributor Adam Othman has no position in any of the stocks mentioned. David Gardner owns shares of Apple and Tesla. Tom Gardner owns shares of Tesla. The Motley Fool owns shares of and recommends Apple, Berkshire Hathaway (B shares), PayPal Holdings, and Tesla. The Motley Fool owns shares of Lightspeed POS Inc and recommends the following options: short March 2023 $130 calls on Apple, short January 2023 $200 puts on Berkshire Hathaway (B shares), long March 2023 $120 calls on Apple, long January 2022 $75 calls on PayPal Holdings, and long January 2023 $200 calls on Berkshire Hathaway (B shares).