Bitcoin has surpassed $18,000 for the first time since December 2017, which saw the prices to zoom to $19,666, the highest till date.
Experts say that never in history had so much money being printed pushing inflation higher while the bond yields are negative. “For the first time ever Germany’s government has sold their 30-year bond for a negative yield and the rest of the developed nations like that of US are struggling to avoid negative yields. So large companies who are holding their reserves in cash are losing value of their assets and are looking for alternative assets like Bitcoin,” said Giottus Co-founder and CEO Vikram Subburaj. This is as per a report in the Economic Times.
Other major cryptocurrencies, such as ethereum and XRP, have risen around 2% to 4%.
According to Bloomberg crypto index, the digital currency outperformed from its yearly low of $4,900 in March 2020 to almost to a rebound of more than 330%, gaining over 130%. The bull run of Bitcoin prices in 2020 has now stretched to 112 days.
Giottus Co-founder and CEO Vikram Subburaj told ET, “Unlike the 2017 Bull run which saw Bitcoin prices reaching $20,000 and then crashing to $12,000, the recent price increase is majorly driven by the entry of Institutional players and not a retail FOMO looking for a short-term gain. The value of the Global Negative-Yielding Debt Index from Bloomberg and Barclays is now at a record level of $17.05 trillion. Never in history had so much money being printed pushing inflation higher while the bond yields are negative. For the first time ever Germany’s government has sold their 30-year bond for a negative yield and the rest of the developed nations like that of US are struggling to avoid negative yields. So large companies who are holding their reserves in cash are losing value of their assets and are looking for alternative assets like Bitcoin.”
The reasons for Bitcoin‘s rally
Investors have attributed this spectacular growth to its perceived inflation-resistant qualities and expectations of wider mainstream acceptance.
“Bitcoin’s growth is largely attributed to how it is designed and in May 2020, we witnessed third halving, a supply shock event, where the number of daily mined Bitcoin gets cut in half. In the previous 2 halvings, Bitcoin and overall crypto market cap has risen exponentially, and a similar trend is expected this time around. In 2020, we are witnessing adoption, not only from retail but institutional investors globally,” said Sumit Gupta, Cofounder and CEO, CoinDCX to ET.
Besides, Bitcoin investments caught the attention of investors who have deep understanding and knowledge of the digital currency. Moreover, last month PayPal and Mastercard said it would open its network to bitcoin and other cryptocurrencies, post which Bitcoin has risen by nearly half.
“Institutions entering Crypto was a long-awaited event and the 2017 price increase was expecting this to happen then. But 2020 has been the year we are seeing many of these institutions entering this space to hedge against traditional investments. Assets under management for Grayscale Crypto investment fund has crossed $10 billion. Prominent personalities like Jack Dorsey(Twitter), Naval Ravikant(Angellist), Robert Kiyosaki (author of Rich Dad, Poor Dad) have become advocates of Bitcoin. Even the likes of J.P Morgan who were calling out Bitcoin a scam are now asking their clients to chuck Gold and invest in Bitcoin,” added Vikram Subburaj.
Vikram Rangala, Chief Marketing Officer at ZebPay believes that people have different motives for buying this Bitcoin rally. “Some are short-term speculators thinking that it’s going up so I’ll buy and it will hopefully go higher. Part of the rally is this sort of gambling. We tell ZebPay members don’t chase the market, don’t act on FOMO. Only buy as part of a long-term plan of cost averaging. If you buy at Rs 13 lakh hoping to sell at Rs 14 lakh for a quick profit, you could easily face a drop to 12 or 11. Instead, buy a little at 13, a little more at 14, then as it drops, buy at 12, 11 — all the way down. Treat it like an SIP. This way your average buy price will be good and when bitcoin tops 20 lakh you’ll have a better return with less risk. This is what smart investors are doing. They see Bitcoin as a new asset class, not a quick gamble.”
Some are also comparing it to gold given Bitcoin’s store of value. This mainly because both are scarce and have played haven against inflation. Hence, because of its fixed supply and increasing demand owing to global acceptance, some experts believe that in future it could compete more intensely with gold.
Citibank’s MD, Tom Fitzpatrik, in a recent article compared the recent Bitcoin price movement to that of the Gold’s in the year 1970, when the US eventually moved out of being a Gold back currency and started the new era of Fiat currency.
He further stated that he expected Bitcoin prices to reach $318,000 by 2021 and have a price correction post that. Bitcoin’s scarcity has been modelled around Gold. It is called Digital Gold and has been a crisis asset.
How will year 2021 be for Bitcoin?
The European commission in September 2020 put forward plans to regulate crypto-assets, their first attempt to oversee the nascent technology. The Global Anti-Money laundering watchdog “Financial Action Task Force (FAFT)” released detailed guidelines on the regulations countries can adopt for cryptocurrencies and has been advising nations to implement these soon. Further countries like Japan, Australia, USA and other countries have looked at regulating cryptocurrencies to benefit from the growth of the technology.
“When the developed nations are looking at regulating cryptocurrencies it will become detrimental for India, if we lose out on this technological race. So, all these strong global support for cryptocurrencies among developed nations might force India to look into regulating them. So, 2021 will mostly be a wait and watch on the actions by developed nations before the Indian regulators take a call on cryptocurrencies,” explained Vikram Subburaj.
Bitcoin has been searched on the web for the “most innovative cryptocurrencies” making investors highly inquisitive to know about what’s next for the asset class.
“Bitcoin will always be the leader in crypto space and is occasionally referred to as the new digital gold . There will be a major uptrend in Bitcoin price in 2021 and we may see similar movement continuing in other top cryptocurrencies such as Ethereum and other top cryptocurrencies from Q1 2021 and so on,” said Sumit Gupta.
While commenting if we India can see some regulation around Bitcoin in the coming years, Vikram Rangala told ET, “Probably not.”
He thinks it will take another couple of years for crypto regulation to be implemented in India. “In the meantime, the industry has to self-regulate with the highest standards of transparency and customer protection, which is what we’ve been doing and will continue to do. And if policymakers want to look at what we’ve been doing as a guide, we’re ready and happy to open our records to them.,” Vikram Rangala said.
Sumit Gupta said that the Indian crypto community has been striving hard and working towards bringing crypto regulations since the last few years.
“What India needs is smart and sensible crypto regulations in place. With regulations, India can lead the crypto revolution and contribute to India’s growth story. Currently, CoinDCX is speaking to regulatory bodies such as IAMAI, in order to develop uniform self-regulatory measures. We are positive that the government will take all the relevant stakeholders into account, before coming to an informed decision,” concluded Gupta.