It was the year of the bitcoin bubble, 2017. Over the following year it lost 84% of its value, falling from $20 000 to $3 200, but is now back within shouting distance of its all-time high.
What’s different this time is the shift in institutional sentiment, something that was largely absent in 2017.
Coindesk provides a list of crypto-related developments in just the last few weeks that demonstrate this shift.
Billionaire hedge fund manager Paul Tudor Jones told Yahoo Finance that bitcoin reminded him of the internet in 1999, when no one knew how to value internet stocks because of the world of possibilities that lay ahead.
He sees only one direction for bitcoin, and that’s up: “I’m going to assume that it’s the wrong price for the possibilities that it has. And I’m going to assume that the path forward from here is north.”
On CNBC, BlackRock CEO Larry Fink said bitcoin has “caught the attention” of many people and that the cryptocurrency market is still relatively small compared with others.
New York-based investment manager AllianceBernstein, with $631 billion under management, had previously discounted bitcoin as an investment asset but now believes it has a place in asset allocation, at least over the long term, due to rising debt levels and the need for diversification opportunities for investors.
This change of heart is driven in part by a recognition of bitcoin’s correlation with other major assets, and its declining volatility as it matures as an investment.
Bitcoin can comprise 1.5% to 10% of portfolios, depending on the cryptocurrency’s monthly returns, says the firm’s research arm.
Bloomberg’s December 2020 Crypto Outlook sees a $50 000 potential price for bitcoin in 2021, with support at $10 000. At $50 000, bitcoin’s market cap would surge to $1 trillion. Billionaires, funds and celebrities are starting to buy bitcoin because of its safe-haven characteristics, which has shown its capacity to protect against inflation.
“The year 2020 will likely be looked back upon as key to Bitcoin’s mainstream evolution, in our view. Strong inflows in regulated exchange-traded products, futures open interest, addresses used and allocations from corporate treasuries, and some billionaires, solidify the 2020 annual price of about $10 000 as foundation support,” says Bloomberg.
There were also some encouraging utterances from Fidelity Digital Assets – and Steve Forbes, editor-in-chief of Forbes magazine, who claims bitcoin could potentially become the new gold but is not there yet.
Hungry for more
Coindesk reports that Guggenheim Partners, with over $230 billion in assets under management, has filed an amendment with the US Securities and Exchange Commission to allow its $5 billion Macro Opportunities Fund to invest up to 10% of its net asset value in the Grayscale Bitcoin Trust.
New York Digital Investment Group has raised $150 million to invest in cryptocurrencies and German bank Hauck & Aufhauser announced it would launch a cryptocurrency fund in 2021.
Earlier, MicroStrategy and Square (Twitter founder Jack Dorsey’s company) announced that they had made substantial investments in bitcoin. Bloomberg reported that MicroStrategy had accumulated 40 824 bitcoin and recently paid another $50 million to top up its bitcoin holdings, paying an average price of $19 427 for the latest purchase.
The reason, says CEO Michael Saylor, is because the company sees bitcoin as less risky than cash or gold.
Shares of Jack Dorsey’s company Square have been on a tear since it announced it had purchased $50 million worth of bitcoin at an average price of $10 618. That’s a gain of 82% for Square’s bitcoin holdings this year.
PayPal has also enabled bitcoin buying and selling through its wallets, which potentially introduces crypto trading to millions of users.
In 2017 it was retail investors who were driving the price of bitcoin. This time it’s institutional investors who seem to be in the driving seat. And that trend is likely to continue into 2021.