Bitcoin madness has experts predicting $170k

Bitcoin is back. The first digital currency, introduced back in 2009, has once again gone on a mammoth bull run and reignited debate over its value. The price of Bitcoin hit all-time highs in 2020 reaching A$50,177, ending the year by doubling in less than a month. Its price is up by more than 330% since this time last year, rising from about $11,622. The digital currency’s market capitalisation is quietly pushing past the A$1 trillion mark. It is currently the fourth most valuable asset worldwide, trailing Google ($1.2 trillion), Amazon ($1.6 trillion) and Microsoft ($1.6 trillion). Its overall market valuation sits at A$912 billion today.

Since its inception, Bitcoin has often been written-off as a bubble housing a dangerous and speculative asset used by fraudsters and criminals. Back then, mainstream institutional investors, fund managers together with Wall Street, were heavy critics of the currency, staying well away. This time around however, Bitcoin is being taken a lot more seriously, having survived a massive sell-off two years ago. Experts say this time around, there are three main factors driving the Bitcoin surge:

1. Media frenzy surrounding sky-high predictions
2. Bitcoin is being treated like digital gold – and like the yellow metal, as a potential ‘safe-haven’ asset
3. Institutional investors and fund managers are starting to invest in BTC.

What has excited traders this time around is the sky-high predictions given to the currency because of its newfound status: Bitcoin has become an effective safe-haven asset for hedging against inflation and a weaker dollar, replacing gold. Some are calling the currency “Digital Gold”. This has led some analysts to give the cryptocurrency dizzying predictions. JP Morgan says Bitcoin could keep rising to astronomical figures as high as US$146,000 (A$188,000). Mike McGlone from Bloomberg has predicted a BTC price of $170,000 by 2022. And at the top end, Citibank’s Tom Fitzpatrick has BTC reaching a staggering $318,000 by the end of 2021.

However, not everyone is sold on the idea that Bitcoin will replace gold as a safe-haven asset. Firstly, the market capitalisation of gold dwarfs Bitcoin. At an estimated $10.6 trillion, gold’s market capitalisation sits well above Bitcoin’s $700 billion. If Bitcoin were to somehow replace gold’s market capitalisation, the resultant price would be eye-watering. A single coin would be worth up around the $450,000-$500,000. And then there is the other issue of BTC being considered a safe-haven asset when its wild price fluctuations render it anything but safe. For it to be treated like digital gold, BTC would need to lose the extreme price movements that have created extreme wealth among some of its early investors. Yet with so few market participants, this is highly unlikely. The extreme price volatility also prevents mainstream fund managers from investing in the currency due to price volatility limits.

A growing number of boutique fund managers such as Apollo Capital and digitalX have established Bitcoin funds held on platforms such as Powerwrap. The funds allow investors to buy shares underpinned by Bitcoin and other currencies. That means the investor doesn’t need to purchase or own the digital currency or attempt to store it themselves, but rather gains an indirect exposure via the fund. This may be attractive to financial advisers and fund managers that are otherwise not permitted to deal in cryptocurrencies. According to The Australian, “complex trades involving bitcoin and the trust’s shares to speculate on the price”, effectively amplify the inflows. Massachusetts Mutual Life Insurance Company bought $US100 million of Bitcoin last month and the Grayscale Bitcoin Trust reported inflows of US$719 million. Estimates by JP Morgan put inflows since mid-October at around $US3bn into that trust. There are rumours that Wall Street’s institutional customers have begun buying, sending upwards of US$5 billion into BTC in the last three months of 2020. This is believed to have been one of the main reasons for the recent bitcoin price surge.  

Supporters of Bitcoin, along with its raving fans have long trumpeted “hedge-against-inflation” idea. With the Joe Biden and the Democrats securing government, investors are betting that the US government will soon inject more cash to aid its COVID-impacted economy. Printing more cash at rock-bottom interest rates quicker than an increase in real output, causes inflation to rise potentially eroding the value of “fiat” currencies. This makes digital currencies such as Bitcoin an attractive proposition, according to experts. With prices hitting all-time highs, many are asking, is it too late? JP Morgan’s Nikolaos Panigirtzoglou suggests Bitcoin has probably hit its peak for the year and could see a correction some time soon. On a medium to longer-term, Bitcoin prices should push higher.

Financial advisers looking for Bitcoin exposure for their clients can use Digitalx’s the Bitcoin Fund on both Powerwrap and Netwealth. The fund is an unlisted fund structure allowing “sophisticated” investors, including family offices and high-net-worth (HNW) investors, a low-cost vehicle to gain exposure to Bitcoin. Most of all, it provides investors with exposure to upside in the price of bitcoin.

Ishan Dan

Ishan is an experienced journalist covering The Inside Investor and The Insider Adviser publications.