What’s driving bitcoin’s latest push through $60 000?

A massive $1.9trn stimulus package by the Biden administration, and an accelerating corporate shift into this new asset class.
At $1.14trn, bitcoin’s market cap is now within shooting distance of Alphabet’s market cap of $1.38trn. Image: Shutterstock

Bitcoin punched through $60 000 over the weekend, hitting another all-time high, driven by accelerating corporate interest in this new asset class, and in anticipation of massive monetary stimulation coming out of the US.

Last week the administration of US President Joe Biden announced a $1.9 trillion (with a ‘t’) stimulus package which will see unemployment benefits of $300 a week being extended through till September this year, and stimulus cheques of $1 400 going to those earning below certain thresholds.

This comes on top of a $900 billion stimulus package agreed in December last year that gave $300-a-week benefits to the unemployed.

“The scale of this stimulus package is unprecedented in US – or indeed – world history, so there is understandable concern over the impact this will have on the US dollar going forward,” says Jon Ovadia, CEO and founder of crypto exchange Ovex.

“There are fears that this will result in inflation in the months and years to come, and that is why bitcoin is seen as a way to protect yourself against this outcome.”

The US dollar has been losing value at the rate of 3.4% a year since the end of the Second World War due to monetary stimulus, yet inflation has seldom – other than in the 1970s – gone much above 2% a year.

Despite massive monetary stimulus in recent years, US inflation remains subdued, largely because much of this new money remains locked up in US bank balance sheets. It has not filtered down to consumers, but has shown up in rising asset prices, like stocks – and bitcoin.

At least some of the $1 400 stimulus cheques being received by US citizens are likely to end up in bitcoin and other cryptos.

That, in part, explains bitcoin’s ongoing rise. But there is a fear this massive stimulus will start to show up in consumer prices.

“There’s a real possibility that within the year, we’re going to be dealing with the most serious incipient inflation problem that we have faced in the last 40 years,” former US Treasury Secretary Larry Summers told Bloomberg in February.

While the US dollar has devalued 3.4% a year for more than 70 years, the South African rand has devalued by 8% a year since it was launched in 1961.

Anti-inflation options

Ovadia says countries subject to high average inflation are big adopters of anti-inflation assets like bitcoin, which will only ever have 21 million coins in issue (there are just less than 19 million currently in issue).

There’s another factor driving bitcoin’s latest price surge: companies like Tesla, MicroStrategy, Square and Stone Ridge shifting large parts of their treasury cash into bitcoin.

Since Tesla’s announcement earlier this year that it had purchased $1.5 billion of bitcoin, several other companies have jumped on board. Earlier this month, software firm Meitu announced it had purchased $22 million in Ether and $19.9 million in bitcoin. The Meitu board was following through on a decision to invest up to $100 million in crypto assets.

Bitcoin’s market cap has now sailed passed the $1 trillion mark to $1.14 trillion, putting it within shooting distance of Alphabet’s $1.38 trillion market cap.

“What this latest move up in the bitcoin price suggests is that the market still has room to run,” says Ovadia.

“In rand terms, we are now getting extremely close to a R1 million bitcoin, which is something many people thought an impossibility just a few years ago,” he adds.

“What this tells us is that there is growing faith in bitcoin as an asset class and some very smart people at the very top of the corporate world see the advantages of holding at least some of [their] reserves in this new asset class.”

Purchasing bitcoin through the Ovex OTC desk

Ovex has become the leading company in SA for crypto arbitrage, but a larger part of its business is its ‘Over The Counter’ or OTC desk which offers institutions and high-net-worth individuals a secure and private channel for arbitrage or trading cryptos.

The problem with buying large volumes of crypto through most exchanges is that the liquidity is not deep enough to settle the trade in one go, meaning the trade may take hours or even days to fully execute at prices that are all over the place. Ovex has solved that problem though an innovative technology solution as well as deep liquidity pools through international partnerships and investments.

Ovex extends this high-end service to the everyday investor through its request for quote product, which has no minimum trade size and allows anyone to request a quote and instantly buy or sell bitcoin and other cryptocurrency at the click of a button – similar to the instant-buy feature on other exchanges, only with no fees and better pricing.

Additionally the Ovex OTC desk can assist with even tighter spreads; whether the trade size is R500 000 or R200 million, Ovex is able to execute a trade at one price with zero slippage.

This is only possible because of its ultra-deep liquidity engine, meaning it has sufficient capital backing and technology infrastructure to be able to execute and settle very large volumes that are often a stretch too far for regular exchanges.

Ovex is backed by Invictus Capital, which manages about $150 million in crypto assets.

Ovex also recently closed a strategic investment round, valuing the group at over R1 billion, according to Alameda research, a Hong Kong-based firm managing over $3 billion and running the fourth largest crypto derivatives exchange in the world, FTX.

To invest in bitcoin, or make risk-free profits from crypto arbitrage, sign up here.

Brought to you by Ovex.

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