Bitcoin Is Being Propped Up And Looks Destined To Collapse

Summary Bitcoin and most cryptocurrencies are nearly worthless, with extreme volatility and speculative nature, making them unsuitable for value investing. Despite high market capitalization, Bitcoin has zero intrinsic value and declining transaction volumes and active addresses indicate waning adoption. Comparisons to precious metals are flawed; cryptocurrencies lack tangible value and diverse applications, being primarily used for speculation. The current data suggests Bitcoin is a bubble propped up by fewer users, leading me to reaffirm a 'strong sell' rating. Those who follow my work closely know that I am no fan of cryptocurrency. My own professional opinion is that most cryptocurrencies, including Bitcoin ( BTC-USD) , are very nearly worthless. Over the years, the markets have disagreed with me. But it's not uncommon for markets to behave irrationally, sometimes for many years. Those who have speculated on Bitcoin specifically moving higher have been well rewarded. Back in December of last year, Bitcoin hit an all time high price of over $109,000. It has since fallen to $87,543. But in all fairness, markets in general have taken a beating, especially almost anything related to the technology space. Cryptocurrency has been particularly volatile during its lifetime, with prices soaring and plummeting from time to time. As I have made clear in previous articles, such as here and here , I don't know what the future holds for Bitcoin. In the near term, we very well could see significantly higher prices than what we have seen in the past. For those who like to gamble instead of invest, this can be a very profitable thing to focus on. The value investor in me, however, eschews from this. And while this might mean that I could be wrong in the near term, I maintain my view that Bitcoin only deserves, and may always deserve, a ‘strong sell’ rating. A bubble being propped up There is no doubt that cryptocurrency is currently being valued by the world rather highly. As of this writing, Bitcoin itself is being priced at about $1.73 trillion. When you add all other cryptocurrencies into the mix, this collective price shoots up to $2.86 trillion. Frankly, I find this to be outrageous. It has zero intrinsic value and it produces nothing. It does, admittedly, have some utility as a medium of exchange. But as Warren Buffett indicated, the market is valuing the check that the money is being delivered with, and nothing more. In his own words : “Bitcoin has no unique value at all. It doesn’t produce anything. You can stare at it all day and no little Bitcoins come out or anything like that. It’s a delusion, basically... If you had bought gold at the time of Christ and you figure the compound rate on it, you know, it may be a couple tenths of a percent. It basically is not going to deliver anything other than a supposed scare out of people. I’ll tear off a button here. What I have here is a little token... I’ll offer it to you for $1,000, and I’ll see if I can get the price up to $2,000 by the end of the day... But the thing is, it’s not investing.” He continued with: “It’s like a check: it’s a very effective way of transmitting money and you can do it anonymously and all that. A check is not worth a whole lot of money just because it can do that. I hope Bitcoin becomes a better way to do it, but you can replicate it a bunch of different ways. The idea that it has some huge intrinsic value is just a joke in my view.” To put in perspective the sheer enormity of the market capitalization of all cryptocurrencies, consider that if this price stood as the equivalent to a nation's GDP, it would make cryptocurrency as a whole larger than the 8th largest country on the planet. It would sandwich it between France and Italy , with the latter being smaller with GDP for this year being forecasted by the IMF of $2.46 trillion. It's crazy to think that a digital ‘currency’ with no underlying asset to back it is considered to be worth more than the entire annual economic output of the 59 million people that currently reside in Italy. Ultimately, I believe that when the history of this era is written, economic historians will view cryptocurrency as perhaps the largest bubble the world has ever known. Data by YCharts [object HTMLElement] At this time, cracks do appear to be forming in the bullish narrative. In the chart above, you can see the price that Bitcoin has traded at over the past few years. Recently, we have seen a downturn. But as I mentioned earlier in this article, extreme volatility in this space is not unheard of. The cracks that I speak of focus on deeper matters. As an example, we need only look at the chart below. In it, you can see a blue line and green bars. The blue line represents the US dollar value of all Bitcoin transactions each month from March of 2020 through February of 2025. Author - Data from Bitcoin City After plunging in 2021, volume seemed to be declining. However, it has seen a resurgence since then. Those looking only at that data might think that the worst is over. However, the total volume of Bitcoins being traded has continued to drop. In fact, the green bars that show this show a very clear trend of ever lower volume. This indicates to me that something is awry. Keep in mind that the entire narrative that the bulls in the space promote centers around the idea of this being the currency of the future. It's all about adoption and becoming a self fulfilling prophecy. It is true that if Bitcoin or cryptocurrency in general becomes accepted by the masses, it could very well remain relevant for the foreseeable future. But you don't see declining volumes and growing acceptance occur simultaneously. Author - Data from Glassnode Studio This is not the only data that I have in my arsenal. If you look at the table above and the chart below, you will see monthly data for the last five years that details out the number of active addresses in the space. Active addresses are unique wallet addresses that are involved in transactions using blockchain technology over a span of time. A wallet is considered to have an active address if it either sends cryptocurrency or receives cryptocurrency in that timeframe. Again, if this was a technology that is on its way to mass market acceptance, you would expect the number of active addresses to increase. But the exact opposite is happening. Author - Data from Glassnode Studio In 2024, the number of active addresses was lower than it had been in previous years. In fact, if we average this data out, the average number of active addresses in 2024 came out to 14.44 million. That's 19.8% lower than the 18 million averaged during 2023. In fact, it's lower than any of the other years that I looked at dating back to 2020. We do also have data for January of 2025. The 14.19 million active addresses experienced during that month ended up being 21% lower than what was achieved in January of 2024. As the second chart below illustrates, it is also substantially lower than any January of the last six years. Author - Data from Glassnode Studio Author - Data from Glassnode Studio This, to me, looks like a bubble that is being propped up by ever shrinking activity. Fewer people are utilizing Bitcoin today than they were in any of the last five years. Of course, this doesn't mean that fewer people own it. One analysis found that 28% of American adults, which translates to roughly 65 million people, currently own some form of cryptocurrency. But this does not necessarily mean that cryptocurrency is going to remain relevant. In fact, the ownership percentage in the US is down from the 30% seen back in 2023 and the 33% seen back in 2022. Furthermore, while data is hard to come by, it is generally accepted that a vast majority of cryptocurrency is owned for investment or speculative purposes. Those who are bullish on Bitcoin and other cryptocurrencies liken it sometimes to precious metals like gold and silver. But these comparisons are tenuous at best. One obvious difference is that precious metals are truly tangible and will exist forever. Cryptocurrency is nothing but code. Another difference is that precious metals are used for far more than just investment or speculative purposes. In 2024, only 23.7% of gold was used for investment purposes. Another 21% was used by central banks. However, other major categories included jewelry and technology. Jewelry accounted for 40.3% of demand, while technology accounted for 6.6%. Central banks have not come even close to fully accepting cryptocurrency. In fact, the US and China combined own less than 2% of all Bitcoin that will ever be issued. It has no use for jewelry or technology either. At the end of the day, it can only be used for transactions or speculative purposes. And at this time, most of it seems to be for speculation. Takeaway The data right now does not look particularly pleasant for those who are bullish about Bitcoin. The cryptocurrency appears to be propped up by nothing more than a shrinking number of ardent supporters. While it is possible that we could see further price spikes in the near term, a dwindling number of users utilizing the faux currency less and less does not bode well for the bubble that I believe exists in this market. At the end of the day, this leaves me with no choice but to reaffirm Bitcoin as a ‘strong sell’ at this time.