Kelly Evans: Bitcoin Hits the Skids

Scott Mlyn | CNBC

Forgive me for not being a little more excited by Bitcoin's sudden collapse to $30,000, but come on, it's still double where it was last November when Bill Miller and Stan Druckenmiller essentially endorsed it (you can read more about that here).  

Plus, it was a straight line up through $60,000! The whole crypto space had completely levitated, from Ether to Dogecoin on SNL to Coinbase going public, to companies like MassMutual and Tesla putting a portion of their cash into the asset class. It wasn't ripe for a pullback; it was overripe.  

Why today? Before I give any specifics, keep one maxim in mind: The market always works to inflict the maximum pain on the maximum number of participants. Crypto collapsing certainly fits that bill right now, as it seemed the whole world had gotten long. But as to today's catalysts, you can add China cracking down on banks doing any crypto transactions to Tesla pulling the plug on taking Bitcoin payments last week.  

The deeper question is whether the fundamental cases for owning Bitcoin have changed. So let's review them:  

(1) Supply and retail demand. There are only going to be 21 million Bitcoin, so as Bill Miller said, even if every millionaire on the planet (there are 47 million of them) wanted to own just one, there wouldn't be enough. That hasn't changed. 

 (2) Supply and institutional demand. Beyond the retail buyers, there are two types of big owners that get Bitcoin bulls excited: professional money managers, and corporate America. Both are only just starting to get the okay to invest in crypto assets like Bitcoin, which is what helped spark the run-up in crypto starting last fall. The player to watch here isn't Tesla, it's MassMutual, the mavericky insurer which put $100 million into Bitcoin late last year. If they pulled the plug that would be a much bigger red flag, but there's no sign of that happening. Makes you wonder if institutional money will actually jump at the chance to buy in here.  

(3) Paying with Bitcoin. I actually don't think this is going to be a big usage case anyhow in the long run--it's just not cost or tax efficient, and regulators might crack down. Tesla's about-face just seems to underscore that point, as opposed to changing the stronger bull cases for crypto outlined in points one and two.  

(4) Bitcoin to hedge The Collapse. The collapse of the dollar, the markets, the U.S. government, society...you name it. All of these might be reasons that buyers in categories one and two would want to own it. But a glance at the price action today suggests that Bitcoin isn't much of a hedge. It tends to benefit from excess liquidity and suffer from a dearth of it, like most other asset classes (including stocks). Frankly, I think most of the people who want to own a piece of Bitcoin are doing so because they recognize everyone else is--a classic landgrab. 

 So does the China news today change the fundamental cases for owning Bitcoin, as referenced in points one and two above? I don't think so. As goofy as this sounds to say, the appeal of owning Bitcoin will come down to how expensive Bitcoin stays. Or as Bill Miller put it on our show, "it gets LESS risky the higher it goes." As long as Bitcoin's price stays relatively high, it will remain a must-own asset. And it won't be if it doesn't.  

See you at 1 p.m! 

Kelly

Twitter: @KellyCNBC

Instagram: @realkellyevans

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