Experts warn Bitcoin is a high-risk, speculative asset, not a stable store of value. Photo / Getty Images
By Susan Edmunds of RNZ
Bitcoin’s value has dropped by about half – but are investors who buy the currency now really getting a bargain?
Bitcoin’s price dropped through the latter half of January and then sharply on Waitangi Day.
It has lifted a little since then but is now worth about $115,631 compared to a peak of more than $212,000.
Sharesies chief financial officer Toni Moyes said it was a factor of the volatile macroeconomic environment and the nomination by United States President Donald Trump of Kevin Warsh to chair the Federal Reserve.
“That signalled that we may be in a higher-for-longer interest rate environment, which does, in turn, make risk-on assets a bit less attractive to investors.
“We’ve also got the very unstable geopolitical environment impacting that risk appetite. Then globally, there was this phenomenon of the liquidation of a lot of long positions for traders using leverage to bet that the price of Bitcoin will go up.
“They were proved wrong and their positions closed out that way and that accelerated that decline we saw last week. That does sometimes happen in crypto because there is a lot of leveraged trading behaviour.”
But she said it was not new and the market tended to be cyclical. Investors would usually be invested for the long run, she said.
“It is one of the more volatile asset classes … the last week has seen one of the steepest declines in the last couple of years but it’s certainly not unprecedented in the 17-year history of Bitcoin … if you look at the last week or two the results have been negative whereas if you look over the last two years we’ve seen the asset appreciate more than 50%.”
She said 38,000 customers had bought crypto on the Sharesies platform since the option became available in October. Waitangi Day was its biggest crypto trading day yet, she said, with $3 million trading.
“Most of that was buying rather than selling so we’re not seeing people panic sell and crystallise losses. What we are seeing is people just staying on their strategy. For every $1 sold, $4.50 was invested. The vast majority of that behaviour was people taking the opportunity to buy Bitcoin and some of them coming in and achieving a lower price.”
University of Otago senior lecturer in finance Muhammad Cheema said similar drops had happened in the past. Bitcoin dropped 47% on a single day in March 2020.
“It is difficult to assess whether Bitcoin will recover in the near term. Unlike shares in listed companies, Bitcoin does not generate income, cash flows, or dividends that can be used to estimate an intrinsic/fundamental value. As a result, determining whether it is ‘undervalued’ is challenging.
“Critics argue that Bitcoin has no fundamental value and its price largely depends on the ‘greater fuel’ theory – the expectation that someone else will pay a higher price in the future. In December 2024, Chicago Booth economist and Nobel laureate Eugene F. Fama predicted that Bitcoin could fall to zero within the next decade.”
University of Otago economist Murat Ungor agreed there was significant risk and said bitcoin was behaving more like a volatile tech stock than a stable store of value, as some proponents have argued it can be.
“Bitcoin functions less as a currency and more as a high-risk speculative asset. Recent research shows it moves in tandem with stock markets, meaning global uncertainty tends to hurt rather than help its value. In short: it’s exciting and headline-grabbing, but it’s not a safe harbour, and timing the market is anything but straightforward.
“In general, movements in Bitcoin’s price are highly volatile and difficult to predict in the short term. A price decline does not necessarily mean it is a good buying opportunity, as the cryptocurrency market is driven by speculation, global liquidity conditions, and regulatory developments rather than fundamental value in the traditional sense.
“For most investors, Bitcoin should be considered a high-risk asset, and any decision to invest should depend on individual risk tolerance and portfolio diversification rather than short-term price movements.”
Ungor said research rejected the idea that it would be a safe haven through periods of market turmoil.
“Instead, it characterises Bitcoin as a speculative digital asset that’s highly sensitive to stock market movements. This means rising global uncertainty tends to weaken rather than strengthen Bitcoin’s value.
“The bottom line: Bitcoin is an exciting technology and makes great headlines, but it’s also a volatile, high-risk investment, not a stable store of value. Timing the market? That’s anyone’s guess.”