Cryptocurrencies will be the theme of the market for the foreseeable future.
The crypto bull market continued over the weekend as Bitcoin (BTC 9.39%) passed $85,000 and the Dogecoin (DOGE 21.44%) meme raged on. The election continues to be the hottest topic in crypto and there seems to be more solid footing on which to analyze the impact on crypto.
Since the close of trading on Friday through 1:30 p.m. ET Monday, Bitcoin is up 10.1%, Ethereum (ETH 7.43%) has jumped 11.6%, and Dogecoin is up 63%.
The Saylor effect
Early today MicroStrategy (MSTR 24.62%) announced it has acquired another 27,200 Bitcoins for $2.03 billion to bring its ownership to over $11 billion of Bitcoin.
This has become a very highly leveraged way to invest in Bitcoin with MicroStrategy selling both debt and equity to fund more buying. What’s interesting for the price of Bitcoin is this is a consistent buyer in the market, so it’s almost a self-fulfilling prophecy that Bitcoin rises as long as MicroStrategy is buying at this scale.
What is less clear is whether the speculation around Bitcoin or MicroStrategy will end anytime soon. The company’s market cap is now over $66 billion with only $24 billion of Bitcoin on the balance sheet. The market is expecting more buying ahead, which would mean more share sales, but that has worked out well in the past.
Doge meme continues to gain momentum
The value of Dogecoin continues to rise on hope that Elon Musk’s potential involvement in the government will lead to some kind of value. There’s no evidence that Dogecoin will generate any value even if Musk is involved in policy somehow, but that hasn’t stopped traders from bidding up values before.
In the week since the election, dozens of tokens and stocks have jumped on little more than speculation about what might happen during a Trump administration, which is still more than two months away.
Back to reality
On a more substantive note, the policy environment is already starting to change. Pro-crypto candidates won seats in both the House of Representatives and Senate, which could bring more favorable laws for the industry.
But the more immediate impact would likely be at the Securities and Exchange Commission (SEC), where names are already being floated for positions. Daniel Gallagher (who is currently a lawyer at Robinhood Markets), Hester Pierce, and Mark Uyeda have all been considered for positions and they all have very pro-crypto mindsets.
Whether this leads to policy changes that help Bitcoin, Ethereum, or Dogecoin is more uncertain.
The big question for crypto
It’s very likely a more favorable policy environment is in place for crypto next year, but what does that mean? For Bitcoin and Dogecoin, the only value they add to the industry currently is in their price going up. But there’s no disruption of the current financial ecosystem from those tokens.
Ethereum may have more upside with more uses of the blockchain, but even the native token may not be used much in transactions. Layer-2 blockchains and stablecoins have taken market share in transactions and I think that’s where the value lies long-term.
For now, speculation is driving crypto higher, but investors should think about what happens when speculation fades. The underlying fundamentals of these tokens may not have the same value.
Travis Hoium has positions in Ethereum. The Motley Fool has positions in and recommends Bitcoin and Ethereum. The Motley Fool has a disclosure policy.
