Billionaire's Bitcoin Bullishness May Be Warning To Bitcoin Buyers

Bitcoin graphic

This morning, the billionaire Marc Lasry was a guest host on CNBC’s Squawk Box. During that appearance, he made some very bullish comments about bitcoin and revealed that around one percent of his fortune was invested in the digital currency. For someone like me who has been a long-term bull when it comes to bitcoin, that should be music to my ears.

Instead, it simply reminded me of what prompted me to write this and this, articles in which I talked of the dangers of the growing interest in cryptos shown by Wall Street and other big business. My point then, as it is now, was that while growing awareness of bitcoin and cryptos in general was an obvious plus, there could be problems if that awareness came from certain quarters.

Back when I started to write about bitcoin in these pages and first started suggesting that investors buy below $500, the rationale was that familiarity with the idea of a digital currency would lead to greater acceptance, and as awareness increased the disinflationary model for the currency would ensure significant price gains.

The last few years have shown that that was a fair assumption, but to be honest, the increased acceptance has not come from where I imagined it would. I, like most back then, envisaged retail driving expansion as more and more vendors, particularly e-commerce vendors, began accepting the digital payment. Retail acceptance, however, has not grown that rapidly. Instead, the surge in price has been driven by a couple of things, neither of which look particularly sustainable.

The first, increased trading activity, is something that, as the above referenced articles show, I and many others saw coming. A market as volatile as bitcoin will always attract speculators, and their presence is truly a double-edged sword. It can add liquidity to the market, but the short-term nature of a trading interest can exaggerate the already pronounced moves in the market.

The second is something that didn’t occur to me years ago, but which is a perfectly logical use for currency that allows for anonymity, online gambling. The fact is that business is illegal according to federal law here in the U.S. and in China, one of the biggest potential markets, makes an anonymous payment method for gamblers extremely attractive.

However, progress suggests that legal, taxed and regulated online gambling will come to the U.S. at some point, and the Chinese government could crack down at any time.

So, as I said, what appear to be the two main drivers of bitcoin’s rise each have an inherent potential future problem. The gambling issue will play out over time, but the real danger to bitcoin and cryptos in general is in the increased holdings by big speculators. Lasry’s one percent is, based on his estimated net worth, close to $17 million and it is reasonable to assume that he is not the only mega-rich individual to have a small percentage of their wealth in the currency.

Those small percentages could well add up to a significant percentage of bitcoin’s roughly $230 billion total market cap, a percentage that would be increased if bitcoin’s price falls further.

Yet, for Lasry and those like him, their investments are small enough on a relative basis that they could quickly be cut for a loss if the market heads lower.

Let’s face it, Lasry is extremely smart and successful and his bullish view has to be respected, but as somebody who made a living in dealing rooms for decades I can assure you that when concentrated positions in a volatile market become widely recognized, a squeeze is never far off. That has been made even more likely by the advent of bitcoin futures trading, which allows traders to take short-term, leveraged positions and increase the pressure.

For true bitcoin believers and the early adopters, none of this really matters. They have already become accustomed to extreme volatility and are in crypto for the long haul. However, for those coming late to the party caution is advisable over the next few months. The recent sharp rally off the lows has given many the hope that BTC/USD can resume its rise. I hope they are right, but the nature of many of the holdings make another sell-off extremely likely before too long.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

Martin Tillier

Martin Tillier spent years working in the Foreign Exchange market, which required an in-depth understanding of both the world’s markets and psychology and techniques of traders. In 2002, Martin left the markets, moved to the U.S., and opened a successful wine store, but the lure of the financial world proved too strong, leading Martin to join a major firm as financial advisor.

Read Martin's Bio