Bitcoin has been dominating headlines and turning heads over the last month as it experiences one of its best rallies since 2017. The cryptocurrency logged double-digit gains in the month of May, and investors are left wondering exactly why it’s experiencing momentum after more than a year of heavy losses.
Here’s what investors need to know about Bitcoin’s performance this month – and how it plays into the broader history of the world’s largest cryptocurrency…
The Rally
From May 1 to May 31, Bitcoin surged more than 60% from about $5,200 to roughly $8,500. It reached a peak price of $9,084, the highest level in 52 weeks. Additionally, Bitcoin futures nabbed their best month ever since their inception back in December 2017 and logged their fourth straight month of gains.
The Bigger Picture
Bitcoin – and cryptocurrencies in general – is an exceptionally difficult asset to analyze since it’s not tethered to any physical asset, making it a largely speculative investment. This fundamental truth became apparent a little over a year ago in what’s now referred to as the Great Bitcoin Bubble of 2018-2019.
Bitcoin started making headlines in the second half of 2017 as the financial media slowly noticed how its price movements were becoming less and less glacial. Despite consistent volatility throughout the year, prices were overall trending upward, nearly doubling from $2,400 in late July 2017 to $4,600 just one month later. By late November, the price of Bitcoin flew above $10,000 for the first time ever and kicked the mass hysteria into high gear.
Two primary hallmarks of a bubble are (1) when the investment has no underlying financial strength to support the price momentum, and (2) when non-investors come off the sidelines to buy into the frenzy. Both were abundantly clear for Bitcoin in late 2017, particularly as apps like Coinbase allowed anybody with a smartphone to push prices to unbelievable new highs.
The wheels eventually came off on Dec. 17, 2017 after Bitcoin hit an all-time high near $19,783 for an unprecedented six-month gain exceeding 691%. Market participants started noticing the crash pretty much as soon as the new year began, and by early February 2018 the price was all the way back down near $7,900. It eventually logged a total 2018 loss of more than 75%, dizzying the public with just how quickly it all happened.
However, its more than 60% gain toward $8,500 this month may confirm an odd suspicion long suspected of Bitcoin even dating back to the bubble: that it’s viewed as a safe-haven asset. Safe havens are investments like precious metals or bonds that investors flock to when the stock market experiences volatility. In other words, they’re theoretically viewed as stable during times of instability.
Viewed that way, Bitcoin’s May rally makes sense. The Dow Jones Industrial Average and S&P 500 both fell 6.7% and 6.6% this month, leading analysts to think of Bitcoin as “digital gold” due to its concurrent rally. Michael Novogratz, the head of cryptocurrency merchant bank Galaxy Digital, said in a recent CNBC interview: “Bitcoin is not going to be a payment currency – it’s going to be just like gold. It won that lane.”
Looking Ahead
As mentioned earlier, the fact that Bitcoin isn’t tied to any existing asset in the physical world makes prognosticating future moves nearly impossible. The May rally appears to be anomaly due to how the cryptocurrency hasn’t rallied during previous months of stock market volatility, particularly last December. This means investors should likely steer clear of Bitcoin unless they have a high tolerance for risk.