The recent move we’ve seen in Bitcoin (CRYPTO:BTC) has truly brought about a level of concern in this sector I haven’t seen in some time. 

The world’s largest cryptocurrency has seen a flood of capital into both its on-chain token, as well as spot Bitcoin ETFs which hold this key digital asset. Often viewed as “digital gold,” Bitcoin has benefited from a number of long-term trends including a shift away from traditional money market funds and short-term bonds to holding some amount of liquidity in assets outside of the financial system.

Whether that’s been gold or Bitcoin, it doesn’t matter. Investors are increasingly concerned about the outlook for equities and other assets, and one taking the view that Bitcoin is worth holding through volatility may be surprised to see its downside move of more than 30% from its peak.

I’m not, and here’s why. 

Correlation to Risk Assets Important to Understand 

Stock chart heading lower, in red

Personally, I think most of the narrative around Bitcoin being a safe haven asset is widely overblown. That’s because Bitcoin’s chart overlayed on top of a chart of the Nasdaq or another tech-heavy exchange is quite remarkable. The level of correlation between Bitcoin and other higher-risk equities and assorted risk assets is tremendous. 

Investors buying Bitcoin today are buying what I view as a leveraged speculative asset which can rise and fall faster than even the most risky equities in the stock market. What that’s meant for Michael Saylor and other Bitcoin enthusiasts during this recent bull market is a surge of capital into their funds and strategies. 

With these strategies unwinding, and liquidations activity remaining very bearish for those looking to place bullish near-term bets on Bitcoin, I think the tables are quickly turning, and a repeat of what we saw in 2022 could be on the table. In fact, this decline could be worse, considering the amount of bullish momentum which has propelled Bitcoin and other risk assets higher.

If AI spending continues to slow, Bitcoin miners may not be able to sell their compute to other hyperscalers and data center players like planned, meaning the network’s stability could come under pressure or become more centralized. For those betting on the decentralization and ubiquity of Bitcoin as a central tenet of their investing thesis, that’s concerning.

Where Will Bitcoin Head from Here?

Bitcoin logo on a gold token

My base case on Bitcoin is starting to shift. Overall, I do think this top cryptocurrency will continue to head higher over time. But it’s a matter of time frame at this point, in my view.

For those looking at a short-term investment in Bitcoin to buy the dip and capture the upside in Bitcoin potentially heading to all-time highs next year, I’m not as certain as I was a few months ago that this will be the case. That said, I do think five or ten years from now, such a purchase will likely be looked upon fondly by investors. 

The thing is, we’ve seen past drawdowns in Bitcoin breach the 90% threshold. Right now, those who bought at the top are down around 30%. That’s tough, but if this token sees its declines triple from here, that may be far too difficult for many investors to stomach, let alone Bitcoin treasury companies that have issued billions of dollars of debt to buy an asset that has the potential to depreciate by this amount.

For now, my one-year price target on Bitcoin is around $75,000 per token as my base case. I do think Bitcoin could drop as low as $50,000 on a pullback, and surge as high as $150,000 if we see bullish momentum pick up. So, that’s a very wide range which implies plenty of volatility. 

Those willing to invest long-term and strap in for that volatility, I say go for it. But for those more conservative investors out there, sticking with the 4%-5% yield money market funds and other short-term Treasury’s can provide seems like a better move.