Big Investors 'Buying the Dip' in Bitcoin; Market High on Cannabis Companies

CryptoCorner

The latest dip in Bitcoin underscores William Shakespeare's observation in The Tempest that "What's past is prologue."

Many retail investors sold during the downturn in an apparent attempt to cut their losses, while long-term investors snapped up newly available coins at good prices, replicating the dynamic of prior dips and sending the price of the crypto higher.

"On-chain signals indicate that strong hands are aggressively buying the Bitcoin dip," Alexandra Clark, a trader at London-based GlobalBlock, said in a research note. "Not only that, but in the last 30 days, long-term holders have added 579,940 (Bitcoins) to their holdings, while short-term [holders] have reduced their holdings by 521,983."

Earlier this month, Bitcoin fell below $30,000 for the first time since January as China continued its efforts to shut down Bitcoin mining operations.

Between April and June, Bitcoin fell from a record high of $64,899 to $28,800, a decline of 55.6%.

Jason Deane
"Bitcoin is still a very young asset in global terms, so these cycles or retail over-exuberance and correction against a backdrop of broadly steady institutional accumulation will probably continue for some time," Jason Deane, Bitcoin analyst for Quantum Economics in London, told Newsweek. Photo Provided

Jason Deane, Bitcoin analyst at Quantum Economics in London, said the recent downturn is just part of the cycle.

"Bitcoin is still a very young asset in global terms, so these cycles or retail over-exuberance and correction against a backdrop of broadly steady institutional accumulation will probably continue for some time," he told Newsweek.

"In the long term, however, as Bitcoin's 'second stage' adoption as the currency continues to grow, it's quite possible that volatility will reduce and speculative pressures will become less relevant," he added.

The trading activity means that Bitcoin is becoming more concentrated among major investors who buy and hold the cryptocurrency as a bet on future price appreciation.

A clever cartoon shows hordes of people lining up to buy Bitcoin at $64,000, but only one brave soul at the window after the price had fallen to $33,000.

The lone investor is shrewd to go against the grain, even if it means buying into what may be more volatility ahead.

The Bitcoin Fear & Greed Index registered 25 Monday, or "extreme fear." That's a buy signal for gutsy investors.

The flip side: When investors salivate for further gains in a rising market, a high reading on the greed side of the index may signal a coming correction.

The Bitcoin market doesn't rise or fall randomly because it's based on supply and demand. But there can be a significant emotional component in its pricing, especially among retail investors who chase a rising market after developing a case of FOMO (Fear Of Missing Out) or dump their holdings in a near panic when the market plunges.

This continuing pattern partially explains Bitcoin's manic price swings.

The number of Bitcoin is capped at 21 million. There are about 18.4 million Bitcoins in circulation, less a small number of lost coins. In theory, Bitcoin's price should rise as long as demand is strong. However, critics argue that Bitcoin is too volatile to be a store of value.

Nevertheless, major investors continue to buy.

MicroStrategy, a Tysons Corner, Virginia-based analytics and business-intelligence company completed a $500 million debt offering to buy more Bitcoin.

Over the weekend, Mexican billionaire Salinas Pliego tweeted that his bank sought to become the first lender to accept the crypto.

But it all may be Never-Never-Land stuff.

Unlike a hot stock issued by a company with a vital product or service in a key sector, Bitcoin has no fundamentals. Instead, it's driven by market dynamics.

In Britain, the Financial Conduct Authority (FCA) banned Biance from operating after it failed to meet anti-money laundering rules. Biance is one of the world's largest crypto exchanges by volume and was about to launch a digital asset marketplace in Britain.

The FCA's decision to ban Biance didn't move Bitcoin's price.

In mid-day trading Monday, Bitcoin changed hands at $34,685.48, up 4.54% in the last 24 hours and up 18.34% for the year. The 24-hour range is $32,452.09 to $35,286.67 The all-time high is $64,829.14. The current market cap is $650.13 billion, CoinDesk reported.

Market Pulse

A survey of 1,200 investors by MagnifyMoney, a division of Charlotte, North Carolina-based LendingTree, found 43% currently invest in the cannabis industry.

Connecticut Fourth State to Legalize Marijuana 2021
Connecticut has become the latest state to legalize marijuana for adults 21 and older. In this photo, a budtender displays cannabis at the Higher Path medical marijuana dispensary in the San Fernando Valley area of Los Angeles, California, December 27, 2017. Robyn Beck/AFP via Getty Images

A majority of those investors got involved in 2020 or 2021, the survey found.

But there's an interesting split: 65% of those who use marijuana invest in cannabis-related stocks.

However, 53% of those who don't invest in the sector said they'd consider doing so should marijuana use be legalized at the federal level.

"Most of those investors (66%) have bought shares of individual cannabis stocks instead of (Exchange-Traded Funds) or mutual funds that include cannabis," the MagnifyMoney survey found. "And investors see potential for the industry, citing long-term growth predictions and high demand as two of the most common reasons for investing."

Seventy-five percent of investors said they believe cannabis stocks will make them rich.

Under Federal law, marijuana possession for medical or recreational use is prohibited. But the days of "Reefer Madness" are long gone and individuals are rarely prosecuted. On the state and local level, judges dismiss many cases for simple possession.

In March, the New York state legislature passed a law legalizing recreational marijuana, expanding medical use and decriminalizing possession of small amounts. Not all provisions took effect immediately.

"Investing in products and companies you use can give some insights into the prospects of a stock, but it's only one factor and certainly not a guarantee of positive returns," Tendayi Kapfidze, LendingTree's chief economist, said in a report.

The survey found younger investors are, in general, more interested than older investors in marijuana-related stocks.

Sixty-two percent of Generation Z, those aged 19 to 24 and 54% of millennials, those aged 25 to 40, have invested in the cannabis industry, the survey found.

Most investments are less than $500.

Baby Boomers, those born between 1946 and 1964, are smaller in number but typically invest more money in the sector, MagnifyMoney's survey found.

Major companies include Canopy Growth, Tilray and Cronos Group. Some have reported significant net losses as they invest heavily to expand revenue growth.

The EFTMG Alternative Harvest ETF, which represents a basket of stocks, has performed well.

Two Canadian companies, High Tide and Village Farms International, have attracted investors. Columbia Care, Cresco Labs, Grow Generation, Jushi Holdings, Planet13 and TerrAscend, have also gained attention.

Some stocks trade over the counter in the U.S. and not all brokerage houses have access to them.

Grand View, a San Francisco-based research and marketing firm, expects the global marijuana industry to reach $89 billion by 2028.

But the cannabis industry creates a paradox: Tobacco products are demonstrably unhealthy and scorned, but marijuana is embraced, or at least tolerated.

Nevertheless, the worldwide tobacco market was valued at $932 billion in 2020 and Grand View Research expects it to grow annually at 1.8% and reach $1.07 trillion by 2028

The U.S. Department of Health and Human Services (HHS) warns that marijuana is addictive and 1-in-10 adults can become addicted.

The danger is higher for younger people and 1-in-6 who use the drug before 18 can become addicted.

"Marijuana can cause permanent IQ loss of as much as 8 points when people start using it as a young age," HHS warned. "These IQ points do not come back, even after quitting marijuana."

Studies have linked marijuana use to depression, anxiety, suicide planning and psychotic episodes.

"It is not known, however, if marijuana use is the cause of these conditions," the federal agency said.

Using marijuana during pregnancy can harm the baby. It can have deleterious effects in daily life, the Federal agency said.

"Using marijuana can affect performance and how well people do in life," HSS said. "Research shows that people who use marijuana are more likely to have relationship problems, worse education outcomes, lower career achievement, and reduced life satisfaction."