Bitcoin Takes A Thanksgiving Swoon

Bitcoin has been one of the top trades of 2020, gaining 164% year-to-date. It hasn’t been a happy Thanksgiving week for bitcoin investors, with the cryptocurrency down 10% in the last week, including a $3,000 drop in less than 24 hours.

Bitcoin prices peaked at $19,783 back in December 2017. Three years later, bitcoin prices reached $19,489 earlier this week before plummeting back below $16,500 on Thursday.

In Friday trading, bitcoin prices stabilized at around $16,815. 

Related Link: What The 5 Biggest Cryptocurrencies Of 2017 Are Worth Today

What Happened: There was no clear reason for the bitcoin sell-off, but Coindesk reported that $2 billion of bitcoin derivative positions were liquidated in 24 hours this week.

Some traders are already calling this week’s sell-off a healthy pullback ahead of a push to new all-time highs above $20,000. However, bitcoin skeptics are anticipating a repeat of the 2017 cryptocurrency bubble in which bitcoin prices peaked at around $20,000 before falling all the way back down to under $4,000 the following year.

Inflation Hedge: One of the driving forces behind bitcoin’s big rally in 2020 has been concerns over inflation following the unprecedented economic stimulus measures by the U.S. government this year.

Not only is the Grayscale Bitcoin Trust (Btc) GBTC up 124% in 2020, the SPDR Gold Trust GLD is also up 17.2% this year, largely on concerns about inflation.

CNBC analyst Jim Cramer recently said investors need to invest in one asset or the other.

"We're on a collision course, which makes me feel great about the gold I own, but I do feel that it's perfectly logical to add crypto to the menu," Cramer said.

Benzinga’s Take: Younger investors seem to see bitcoin as the best alternative to cash as a store of value, but 15% to 20% price drops overnight without any clear reason don't necessarily instill confidence in investors looking for safety.

Until the extreme volatility in the bitcoin market dies down, it will likely have a difficult time winning over investors looking for a safe, secure alternative to cash that won’t keep them up at night.