Bitcoin smashed its previous record of nearly $20,000 reached in December 2017 on Wednesday. A day later, the asset class set a new record as it surged past $23,000 per coin. 

Brian Armstrong issues warning against the crypto rally

“We cannot emphasize enough how important it is to understand that investing in crypto is not without risk,” wrote Coinbase chief executive in a blog post.

He pointed out that bitcoin is a very volatile asset with wild and unexpected price swings. “The market can move in either direction much faster than equity markets,” he continued.

Armstrong’s advice is consistent with what fund managers usually advocate for: that clients only put the money they are willing to lose on the line. There is no telling how the markets will react after a bull run.

He highlighted that digital assets behave the same way as all other asset classes as their prices “rise and fall over time.”

Going back in time, he reminded people what happened in 2017 when bitcoin’s price soared to its historic high before crashing landing within a year.

This is not the first time that Armstrong has cautioned investors. During the rise of bitcoin in 2017, he said that the digital asset was in a bubble. 

Bitcoin bull Mike Novogratz echoed Armstrong’s sentiments in 2017 when he said the digital asset is the “biggest bubble of our lifetimes.” Famed economist and bitcoin critic Professor Nouriel Roubini called bitcoin “the mother and father of all bubbles.”

Successful investor Warren Buffet sees bitcoin as a gambling device and at one point, warned investors that the leading cryptocurrency is “rat poison squared.”

Bitcoin is usually compared to the Tulip mania bubble of the 17th century.

What the future holds for bitcoin

The exchange which achieved unicorn status makes most of its revenue from charging trading fees when people buy and sell cryptocurrencies on the platform.

After months of speculation, Coinbase put all rumors to bed yesterday when the company announced that it had confidentially filed IPO preliminary papers with the U.S. Securities and Exchange Commission (SEC).

Although he avoided using the word bubble in his warning, he cautioned investors who are after short-term speculation to “consult financial advisors to better understand the risks associated with investing in cryptocurrencies.”

He added that these are the early days of crypto and there is a long road ahead.

“For those who believe in the potential of crypto, we also all have to believe that we’re still in the very early stages and that there’s a lot more to come.”

Why this time is different

Industry insiders claim that the current bull run is different from 2017 because it is driven by institutional capital rather than retail investors who carried the crypto market since its inception in the aftermath of the 2008 financial crisis.

Bitcoin has been given a boost by major companies buying the digital asset to diversify their portfolios and hedge against currencies that are tanking due to the coronavirus pandemic.

Amid the market excitement and exuberance, it remains to be seen which direction the market will take. Will bitcoin follow the 2017 trajectory and shed most of its gains within a year, or will the momentum continue?