Feature Story: Bitcoin’s relentless rally and its possible future

By Our Correspondent

Bitcoin, the controversial cryptocurrency, appears to be finally coming into its own as institutional investors increasingly add it to their portfolios, teetering on the edge of breaking its previous record set three years ago despite withering scorn from such economists as Nouriel Roubini and David Webb.

Major global asset managers such as PayPal, Paul Tudor Jones, Grayscale, MicroStrategy, Guggenheim Partners and Blackrock begun to recalibrate their portfolios to make it the world’s best-performing asset class in 2020. The cyptocurrency reached US$19,857 per unit this month, breaking the previous record set in December 2017 in Asia when it approached the psychological-barrier of US$20,000 for the first time.

Analysts are increasingly convinced that the digital currency created by the mysterious Satoshi Nakamoto is likely to rise further. Some are bullish as shown by analysts at Bloomberg joining the chorus of Bitcoin bulls in their Crypto Monthly by saying the currency could rise as high as US$50,000.

While it is hard to point out one single reason behind the new-found enthusiasm, some analysts believe that investors are looking at Bitcoin as a safe haven in a time of general weakness in the US dollar.

Congressional Democrats coming out in favor of a US$908 billion stimulus may also weigh on the US currency, driving the greenback down further, analysts say. And with the dollar dropping to its lowest price in two and a half years, institutional investors are looking to Bitcoin as a hedge against inflation, according to some experts.

A confluence of positive factors must have made Bitcoin promoters pleased because it shows that the digital currency is finally getting the attention it deserves. Until this year, institutions have largely stayed on the sidelines, making the market watchers wonder if and when the currency might actually go mainstream. That time of institutional adoption might now be coming slowly, experts believe.

Over the past few years, the cryptocurrency industry – despite regulatory uncertainty – has become increasingly mature. Licensed exchanges, Bitcoin funds and regulated futures markets have given quant funds, asset managers and family offices easier avenues to purchase the asset class.
Indeed, weekly net inflows of bitcoin to platforms serving mostly North American users have jumped over 7,000 times this year to over 216,000 units worth US$3.4 billion in mid-November, according to Reuters.
Those serving investors in the region bled 240,000 bitcoins worth US$3.8 billion into exchanges last month, versus an inflow of 1,460 in January, according to the data from US blockchain firm Chainalysis quoted by Reuters.
Digital exchange eToro saw a 66 percent increase in the number of people holding a Bitcoin position on its platform in November, compared with the last time it hit an all-time high in December 2017.

Grayscale Bitcoin Trust breached US$10 billion, up from US$2 billion at the beginning of the year. According to reports, it has bought nearly 70 percent of new Bitcoins mined since May 11 when the Bitcoin underwent its third reward-halving. MicroStrategy paid US$50mn to buy Bitcoin at an average price of US$19, 472. The company now has 40, 824 Bitcoins, according to sources.

Despite the growing interest, the Bitcoin industry is still tiny with a market capitalization of US$580 billion compared to US$52 trillion managed by institutional investors in other assets. Efforts, however, are underway that would make Bitcoin more mainstream.

Interestingly, S&P Dow Jones Indices, a division of financial data provider S&P Global Inc. said that it will launch cryptocurrency indices in 2021, making it the latest company to take interest in cryptocurrency as an asset class.

“There is no doubt we will exceed US$20K at some point,” said Tim Bos, Australian CEO & co-founder of ShareRing, a blockchain firm. He believes, however, there is a huge selling pressure despite the current enthusiasm. “The future seems brighter than ever for Bitcoin, but I am reserving my expectations for new highs next week.”

Major companies like PayPal and Microstrategy are buying Bitcoin, seeking to diversify in the face of rapid inflation, Bos said.

Gunnar Jaerv, COO of First Digital Trust, a digital asset custody provider, said Bitcoin is testing the previous record is a good sign for the fintech industry.

“The news that Bitcoin has hit an all-time high is very warmly welcomed for the fintech industry,” he said. “The increase in price is likely a result of major institutional investors joining the bandwagon and purchasing a portion of BTC’s limited supply in the midst of a bull run.”

He said investors like the Guggenheim Partners, who had declared they may be investing up to US$530 million or half a billion dollars into a Bitcoin trust, is evidence that Bitcoin is “no longer the mirage it used to be – it is truly becoming the oasis in the desert.”

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