In a week where financial news seemed relatively quiet, there was one unavoidable headline: Bitcoin (BTC) is nearing the $100,000 mark, sitting at $99,243 as of this writing. If you’re unfamiliar with cryptocurrency or have been skeptical, you’re certainly not alone. Many are wondering what this surge means and whether it should matter to them. Let’s break it down in straightforward terms and explore the excitement—and caution—that comes with this milestone.
First, it’s essential to review what Bitcoin is. Bitcoin is a form of digital currency often referred to as a cryptocurrency. It’s probably easiest to think of it as virtual money that exists only online. And while that may sound “out there,” it’s not dissimilar to how many people interact with the U.S. Dollar: from direct deposits to credit cards to online bill payments, many people never interact with physical currency.
In addition, unlike traditional currency, Bitcoin isn’t regulated by any government or central bank. Instead, it operates on blockchain technology, which is like a public ledger recording all transactions securely and transparently. Bitcoin is decentralized, meaning no single entity controls it; it’s maintained by a network of computers worldwide. Transactions can be made directly between users without needing a bank, making it a peer-to-peer currency. And finally, there’s a limited supply—only 21 million bitcoins will ever be created—which means you can’t just create more.
With that very brief background, we’ll turn to the news of the week. As Bitcoin prepares to break through the $100K mark (which feels inevitable at this point), it’s likely to start the cycle that accompanies rapid gains. Every market boom brings with it a sense of excitement—and sometimes, irrational exuberance. The growing buzz is attracting both seasoned investors and newcomers as Bitcoin ETFs bring in billions of dollars in new money.
This hype is fueled not only by the possibility of significant returns but also by the fear of missing out (FOMO). A perfect example of this possible euphoria/FOMO is evident with MicroStrategy (MSTR), once a standard software firm that has transformed into a “Bitcoin treasury company.” They’ve been buying massive amounts of Bitcoin and funding these purchases by selling additional shares of their own stock. As their stock price rises due to Bitcoin’s surge, they sell more stock to buy more Bitcoin, creating a cycle fueled by market enthusiasm.
But how do you know when it’s gone too far? Well, specifically for MicroStrategy, it might be when their market value is significantly higher than the actual value of the Bitcoin they hold. At last count, they owned ~331K bitcoins, worth about $31.2 billion. Yet, their stock-market value is $106 billion, suggesting that investors are paying a premium—almost four times the value of their bitcoin holdings after accounting for debt—conceivably due to hype rather than fundamental value.
Bitcoin’s approach to the $100K mark is undoubtedly a significant event in the financial world. However, it’s important to approach this milestone with a balanced perspective. The hype and euphoria surrounding Bitcoin and related investments like MicroStrategy highlight the potential risks of getting caught up in market manias.
If you’re inclined to speculate that Bitcoin’s value will increase, consider purchasing some directly. Your prediction about its future trajectory will likely be as accurate as anyone else’s, and you’ll pay the market price. However, investing in MicroStrategy’s stock is a bet that the already irrational market valuations will become even more extreme.
Whether you’re intrigued by the possibilities of cryptocurrency or remain skeptical, staying informed and cautious is the best strategy. The financial landscape continually evolves, and while innovation brings new opportunities, it also introduces new challenges.
Economy
- Equity markets reversed the downward momentum from last week and are looking up as we head into the Thanksgiving holiday. The S&P was up 1.7%, the Nasdaq was up 1.7%, and the small-cap Russell 2000 was up 4.5%.
- Existing home sales rose by 3.5% from the previous month to a seasonally adjusted annualized rate of 3.96 million in October, rebounding from the 14-year low of 3.83 million in the prior month, slightly ahead of market expectations of 3.93 million.
- Building permits in the U.S. fell by 0.6% to a seasonally adjusted annual rate of 1.42 million in October 2024, slightly below market expectations.
Stocks
- U.S. equities were in positive territory. Materials and Utilities were the top performers, while Healthcare and Financials lagged. Growth stocks led value stocks, and small caps beat large caps.
- International equities closed higher for the week. Developed markets fared better than emerging markets.
Bonds
- The 10-year Treasury bond yield decreased two basis points to 4.41% during the week.
- Global bond markets were in positive territory this week.
- High-yield bonds led for the week, followed by government bonds and corporate bonds.
