Has Bitcoin (BTC) reached a peak when it jumped by five-fold in the last 12 months? Disruptive technology enthusiasts like Cathie Wood, Elon Musk, and Jack Dorsey believe that we’re still in the early innings of the bitcoin rally.

One thing is for sure: the blockchain revolution has taken the financial industry by storm and created a new way we can transfer value in the future.

Moreover, a growing number of companies have invested in bitcoin as a hedge against currency devaluation. Elon Musk added instant credibility to cryptocurrency by investing Tesla’s $1.5 billion cash in bitcoin. So far, the investment is right on the money with $1 billion in gains. Also, Michael Saylor’s $6 billion software company MicroStrategy bought more than $2 billion in bitcoin last summer.

Adding still more credibility is the Federal Reserve Bank of Dallas president saying that bitcoin is “a store of value.”

As a result, star fund manager Cathie Wood said the price of bitcoin will boost by $40,000 if all S&P 500 companies allocate as little as 1% of their cash to bitcoin. Moreover, Wood set a price target of $400,000 for bitcoin because of the surging adoption rate.

“We have been expecting institutions to start moving into Bitcoin and other crypto assets, but primarily bitcoin,” Wood said.

How to Evaluate Bitcoin

Much like stocks, market timing is key to making great profits from investing in fungible digital asset classes.

More critically, investors need to consider new tools and valuation methods for cryptocurrency because traditional methods don’t paint an accurate picture of any cryptocurrency’s value.

Bitcoin’s value relies more on supply and demand, along with the adoption rate. Although not tightly correlated, the global financial environment also plays a factor in valuing bitcoin and other major cryptocurrencies. 

The “Three-Layered Pyramid” Method To Value Coins market

Ark Invest analyst Yassine Elmandjra said that “on-chain data” is one of the best ways to analyze Bitcoin. The analyst used a three-layered pyramid to explain the valuation process:

  1. Active traders: Traders who want to make profits from the short-term price movement should use metrics like the Relative Strength Index to predict the crypto movement. Investors can also base their decisions on market adoption reports. For instance, the price of bitcoin rallied sharply when Tesla disclosed its investment earlier this year.
  2. Long-term investment: If you plan to hold the crypto investment for the long-term, you need to look at the fundamental factors — rather than short-term technical data. Fundamentals include the usage of crypto coins in the financial markets and in our daily lives.
  3. Acceptability as a valid form of payment: The network’s health is the biggest factor when it comes to the acceptability of assets from stakeholders and observers. Also important to its health is security, transparency, and monetary integrity.

How to Buy Crypto:

Bitcoin looked complex and intimidating to new investors five years ago, but the explosion in popularity of digital coins has made buying bitcoin as easy as buying shoes online.

Investors can buy, hold and sell crypto coins from traditional exchanges (like Nasdaq-listed Coinbase), or from popular fintech platforms (like Square, Robinhood, or Cash).

Here are a few more ways to invest in crypto markets:

  • Stocks: Investors can own stocks that offer crypto services, such as Coinbase, Square, or PayPal.
  • ETFs: Exchange-traded funds are another way. A few popular crypto ETFs include Amplify Transformational Data Sharing ETF, Siren Nasdaq NexGen Economy ETF, First Trust Indxx Innovative Transaction & Process ETF, and Capital Link NextGen Protocol ETF
  • Options: Brokers in some countries permit investors to trade options for cryptocurrencies.
  • Crypto IRAs: Coins market IRAs became more popular recently. The total assets of iTrustCapital, the world’s largest crypto IRA retirement account platform, exceeded the $1 billion level at the end of the March quarter.
  • Futures: Similar to stock and commodity futures contracts, traders can also speculate on bitcoin futures.

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

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