Analysis: Institutional investors could contribute to Bitcoin's continued ascent.
Analysis: Institutional investors could contribute to Bitcoin's continued ascent.
According to analysts, bitcoin's most recent explosive rise to a new high may have more legs than in 2021 as established institutions continue to pump money into the cryptocurrency.
Driven by enthusiasm about new U.S. spot bitcoin exchange-traded funds (ETFs) and anticipation the Federal Reserve would begin cutting U.S. interest rates this year, the largest cryptocurrency in the world, which is infamous for its volatility, touched $69,202 on Tuesday.
With fewer than 20 years of experience as a financial asset, it is still quite difficult to anticipate the price trend of bitcoin. In November 2021, a few months after the retail euphoria had propelled bitcoin to its previous peak, the cryptocurrency plummeted, erasing half of the crypto sector in the process.
However, analysts and executives noted that additional institutions making long-term financial commitments might support the token in maintaining its high levels this time.
According to Nathan McCauley, CEO of cryptocurrency platform Anchorage Digital, "traditional institutions were once sitting out; today, they are here in full force as the principal drivers of the crypto bull market."
For instance, in February, social networking site Reddit revealed that it had purchased little amounts of ether and bitcoin, while software company MicroStrategy announced that it had purchased roughly 3,000 bitcoins for $155 million.
Chief strategist at Interactive Brokers Steve Sosnick stated, "The market is getting pushed around by some of the crypto industry whales," and he predicted a brief decline in the price of bitcoin as investors took profits.
Ten new U.S. bitcoin ETFs, which offer a regulated alternative for established institutions or other buyers who could suddenly feel comfortable investing in cryptocurrencies, are another factor contributing to sticky money.
This year alone, Bitcoin has increased by almost 50%, and the majority of those gains have coincided with money flowing into the new ETFs. Based on BitMex Research, net flows into the goods were $7.9 billion as of Monday.
Although he declined to name them, Sui Chung, CEO of CF Benchmarks, which provides the index for six of the ETFs, stated he was aware of certain large institutions and registered investment advisors that were investing in the ETFs.
"For institutions, bitcoin’s core appeal is the diversification potential it offers," he stated.
As revealed by cryptocurrency publication The Block last month, wealth management Gerber Kawasaki has invested in BlackRock's spot bitcoin ETF through its AdvisorShares ETF. According to Bitfinex researchers, these investors are usually less sensitive to price changes.
"A fall that occurs after the current cycle's peak might not be as severe as earlier ones. After a sharp rise following the introduction of gold ETFs, we observed a similar steady trajectory in price," they continued.
Google data show that indicators such as Google searches—which other experts have used to measure consumer interest in cryptocurrencies—have not increased in comparison to 2021 and 2022.
Trading in CME Micro Bitcoin futures, which are accessible to wealthy retail investors at a rate of one-tenth of a bitcoin, increased from 32,007 on February 27 to around 87,000 on February 28.
According to CME data, trading in CME Micro Bitcoin futures, which are priced at one-tenth of a bitcoin and accessible to affluent retail investors, increased from 32,007 on February 27 to roughly 87,000 on February 28.
"If there is a retail frenzy, it started on Feb. 27th," Chung stated.
DYNAMICS OF SUPPLY
In actuality, Bitcoin is still primarily a speculative asset held by individual investors, having only been created in 2008. It is difficult to forecast how it will trade throughout several economic cycles due to its short track record.
It has no economic underpinnings, unlike commodities like gold, therefore analysts at the European Central Bank cautioned last month that it is impossible to predict its price with any degree of accuracy.
Still, supply-side variables are involved, just like with commodities.
The possible price overhang caused by bitcoins stuck in bankruptcies that might be liquidated in the upcoming months is one thing that is unclear. Last year, bankruptcy held up to $35 billion worth of cryptocurrency; however, Reuters was unable to determine the exact amount held in bitcoin.
However, the impending "halving" of the bitcoin supply is expected to further reduce it, with a final ceiling of 21 million bitcoins. The last time such process happened was in 2020, therefore compared to the 2021 surge, there is more pressure on the supply of bitcoin.
Zach Pandl, managing director of research at Grayscale Investments, which runs one of the spot bitcoin ETFs, stated that this might drive prices higher.
"Bitcoin demand is colliding with increasingly tight supply," he stated.
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