By Alexey Kirienko, CEO of International investment firm, EXANTE
When investors hesitate to buy stocks and bonds, and real estate gets too expensive, they start looking for protection instruments. Gold has always been synonymous with security; however, we’re now seeing a competitor emerging in the shape of Bitcoin, which has proved to be an invaluable instrument when hedging systematic risks.
Whilst the stock market has a psychological limit based on the ratio of revenue to stock price, the gold, silver and Bitcoin markets have no such limit. Nobody expects any dividends from them.
The recent upsurge in in Bitcoin appreciation may signify a larger market attitude and Joe Biden’s win can only help this sentiment as he’s seen as a convenient figure for business.
Additionally, the news surrounding PayPal’s support definitely helped to bolster Bitcoin’s overall market value.
PayPal has announced that it will allow users to store and sell crypto currencies and extended its purchase limit from $10K to $15K – meaning that Bitcoin will soon become available for a huge number of Americans. Back in 2013 they were among the fierce crypto haters. This means a paradigm change: Bitcoin is actively penetrating the conservative financial market. Other well-known companies, such as Square, MicroStrategy and Stone Ridge, have also purchased assets in Bitcoin. JP Morgan even reported that Bitcoin was on course to outperform the gold market in the coming year – an optimistic prediction that has investors excited for the prospects of this burgeoning currency.
There are generally two fundamental factors that drive the Bitcoin price higher over the long term; supply and demand.
With the supply side it’s pretty straightforward: bitcoin inflation (emission more precisely) has slowed down to only 1.8% pa this year and it will go down further, halving every 4 years.
With the demand, we now have tangible statistics on which we can base our prognosis. There are three types of Bitcoin holders which we’re aware of:
- Funds, like Grayscale and XBT
- Uniq bitcoin addresses holding the cryptocurrency
- WBTC – wrapped bitcoin on Etherium network, quite new phenomenon, but already significant.
Grayscale GBTC is the biggest public holder of Bitcoin, but what more important for us, is it purchases on average nearly the whole Bitcoin emission or 900 BTC per day.
And this is only one fund out of at least hundreds more that are not public, and we don’t know their holdings exactly. In particular, Grayscale recently revealed that it manages more than $ 6.5 billion in assets. In the third quarter alone, the investment inflows totalled $1.05 billion. This is a sign that investors believe in the potential of bitcoin.
The BTC dropped in March, it has since added over 200% to its value in recent months. Last week, the asset gained momentum as stocks were falling. It’s growing rapidly – even outpacing the NASDAQ in terms of its growth dynamics. In my opinion the Bitcoin price will go higher and higher as this is the only way to satisfy the growing demand from the funds and private users and holders.
If the markets manage to circumvent the new wave of panic and lockdowns, we project that Bitcoin will soar above $20K by the end of the year.