Bitcoin insights
By Fri, 12 Mar 2021

Bitcoin recovered nearly all of its recently lost ground in pegging fresh rebound highs above $56,600. That marks over a 30% rise out of the correction low that was seen on February 28th, six days after the cryptocurrency hit a record peak at $58,238. The market cap of cryptocurrencies is up some $1 tln since the start of the year, with bitcoin accounting for 60% of the total. Cryptocurrency advocates, which these days include the likes of Tesla and PayPal, remain strongly bullish, and it was noticeable that many narratives in the crypto world remained unwavering in belief during the recent 25%-odd rout from the all-time high. Now that the record peak is back in sight, the level of bullishness has once again become discernibly feverish. The view from the sceptical camp, which doesn’t discount the significance of blockchain technology but rather questions the longer-term survivability of prevailing incarnations, still views the market for bitcoin and other leading brands as being a grand ‘bigger fool’ game.

The big hope/expectation for crypto advocates is that institutional investors and corporations might start to take on cryptocurrencies. A recent survey, sponsored by JPMorgan, of nearly 3,400 institutional investors, saw 58% of respondents saying that the cryptocurrency market was here to stay, with 7% saying the asset class would become one of the most important in the future. But, 89% still said that they don’t hold any positions in cryptocurrencies and 78% said they are not planning to invest, with 21% saying that they are a ‘temporary fad’.

While cryptocurrencies are currently weak propositions in terms of being an efficacious means of exchange (transactions are slow and there remains a lack of critical mass) and as a unit of account (JPMorgan calculated the three-month realised volatility of bitcoin is 87% against just 16% for gold), they can still be seen as a viable store of value.
The latter point has particular relevance in emerging economies, offering a repository of value that can offer protection in politically unstable environments and from the risk of governments that may devalue the domestic currency. Central bank digital currencies (CBDC) are also on the horizon, being so far most developed by China. This will offer an alternative to peer-to-peer cryptocurrencies, and could, perhaps alongside regulation, pose an eventual existential threat to bitcoin. The regulation situation should be monitored closely, with Nigeria, for instance, recently joining a growing list of countries have have outlawed cryptocurrencies due to issues such as fraud and money laundering.

For now, with the accessibility and credibility of cryptocurrencies on the assent, bitcoin looks likely to continue in on a bull trend. There are risks, and with the total market cap of cryptocurrencies already nearing 25% of the market value of gold it will take more than the speculative capital of crypto advocates to sustain valuations. The current juncture seems to be something of a make or break, and if there is any sign that the adoption by corporations and institutional investors is underwhelming over the coming months, the prevailing crypto fervour might start to fade, which could set the scene for a deep correction.

Click here to access the our Economic Calendar

Andria Pichidi

Market Analyst

Disclaimer: This material is provided as a general marketing communication for information purposes only and does not constitute an independent investment research. Nothing in this communication contains, or should be considered as containing, an investment advice or an investment recommendation or a solicitation for the purpose of buying or selling of any financial instrument. All information provided is gathered from reputable sources and any information containing an indication of past performance is not a guarantee or reliable indicator of future performance. Users acknowledge that any investment in Leveraged Products is characterized by a certain degree of uncertainty and that any investment of this nature involves a high level of risk for which the users are solely responsible and liable. We assume no liability for any loss arising from any investment made based on the information provided in this communication. This communication must not be reproduced or further distributed without our prior written permission.