Bitcoin, Bitcoin, Bitcoin: Why Some Buy And Some Don't

Amid the hype of the WannaCry scare, which catalyzed a 43-percent pop in bitcoin value, the cryptocurrency is all anyone’s talking about.

In the last two months, it has more than tripled in price, from $925.20 on March 24 to $2,791.70 May 25. Wednesday’s rate was more than double that of April 30 and represented a 447-percent year-over-year gain. At the beginning of 2015, it was trading below $200, and at a present rate of $2,577.32, it’s continuing to shatter all-time highs.

But even as the bitcoin rockets, some traders are disinclined to engage.

Why Some Won’t Buy

Dennis Dick, proprietary trader at Bright Trading LLC and co-host of Benzinga’s PreMarket Prep radio show, remains skeptical, deterred primarily by uncertainty surrounding valuation and price targeting.

“How do I sit back and crunch numbers and come up with a fundamental value for bitcoin?” he quipped on Thursday’s PreMarket Prep. “If you have a traditional currency like the Canadian dollar, you can look at trade, you can look at interest rates, you can look at what shape the economy is in to try to get a gauge for if people are going to demand Canadian dollars or not.”

Jeff Goldman, author of "Failed Traders," can empathize.

Related Link: Is It Possible To Turn $100 Into $70 Million? It Is If You Bought Bitcoin 7 Years Ago

“It just comes down to supply and demand,” Goldman said on the show. “But the supply part is set on bitcoin, and now all it is is being demand-driven right now, so fundamentally, I don’t know how you value it, to be honest.”

But that hasn’t prevented him from trying. Goldman weighs cryptocurrencies’ fundamental values partly by looking at “smart players” and high-profile companies buying in, and it appears other investors entertain similar strategies. Since Microsoft Corporation MSFT, Intel Corporation INTC and JPMorgan Chase & Co. JPM made a February play on Ethereum, the currency’s value has rose from $14.58 to $193.04.

Another method of valuation is tracking the scheduled mining of bitcoins. Specific quantities are released periodically, and the exact number in circulation is easily discovered for calculations.

Goldman’s Bitcoin Play

As a believer in blockchain technology, Goldman first bought bitcoin in April 2015 at a value around $250. He continues to hold most of his portfolio amid all-time highs but has begun to sell some “because it’s just getting way, way bubbly at this point.”

“Right now, I think this is being driven by everybody wanting to get in,” he said. “There are only 16 million bitcoins ━ that’s not a lot of bitcoins [...] It’s really just hitting the news now, and there are real investors wanting to get in, and there’s just not a lot of supply of bitcoin.”

Related Link: SEC To Review Decision Denying Bitcoin Market Listing

Despite his active participation, Goldman understands why many opt for the sidelines. “To buy bitcoin is not all that easy,” he said.

The process begins with opening an account through a platform like Coinbase and linking to a bank account. After that, traders are limited in the amount they can invest until they provide more personal information, such as a photo ID or social security number. Then the ceiling rises. Additionally, coin delivery takes days from the time of purchase, so access is not immediate.

How To Watch, Listen, Learn With BZ

PreMarket Prep is a daily trading ideas show with a focus on pre-market volatility and technical setups. You can listen live and chat with our hosts, guests, and listeners every morning from 8–9 a.m. ET here or on YouTube Live. You can listen to the podcast on iTunes, Soundcloud and Sticher.