The week bitcoin went mainstream?

It’s starting to feel like an inflection point.

Last week former Bank of England governor Mark Carney stood on stage with BlackRock CEO Larry Fink as the latter made a major cryptocurrency admission.

Bitcoin, he said, had “caught the attention and the imagination of many who are fascinated and excited by it.”

“Can [bitcoin] evolve into a global market?” he continued. “Possibly. [Bitcoin is] still untested, a pretty small market relative to other markets. You see these giant moves every day. It’s a thin market.”

It’s a major reversal from Fink’s 2017 comments, where along with Jamie Dimon he disparaged bitcoin as being nothing more than a money laundering tool.

Now, I don’t want to make too much of one CEO’s journey – even a CEO who directs trillions of dollars in capital, as Fink does in his position at BlackRock.

But it’s not just Fink. Several major institutional players – with trillions of dollars between them – warmed to bitcoin last week.

Since its creation in 2008 – a journey taking it from a fraction of a penny to nearly $20,000, bitcoin has somehow kept its reputation as an underdog the whole way.

Even as it soared millions of per cent, the contempt of establishment figures, and pundits’ insistences that the fad would die out any day now, labelled bitcoin as the phenomenon that wasn’t supposed to happen.

Dimon famously called it a fraud. Paul Krugman called it evil.

But all of the sudden – and the change really does feel sudden – it feels more fashionable to endorse bitcoin and digital currencies in general than it does to continue to naysay.

Just consider – in the same week that Fink made his admission, billionaire investor Paul Tudor Jones compared investing in bitcoin now to investing early in tech.

In an interview with Yahoo Finance last Friday, the founder of Tudor Investment Corporation predicted that bitcoin would rise “substantially higher” in the next 20 years as digital currencies went mainstream. And keep in mind – that prediction was made days after bitcoin hit a new record high of $19,918.

And then came the filing from Guggenheim Partners, placing an amendment before the U.S. Securities and Exchange Commission that would permit it to direct $10% of its $5 billion Macro Opportunities Fund towards the Grayscale Bitcoin Trust.

If you’ve seen Grayscale in the news lately, it’s likely because the digital currency asset manager just secured more than $1 billion in new investment in Q3 2020.

For perspective, that’s almost equal to the $1.2 billion the fund secured from 2013 to 2019 – meaning that it’s seen more institutional interest in the last quarter than it did in the entire 2017-2018 crypto mania. And with assets under management growing 147% year to date, it’s now one of the fastest-growing investment products.

If Guggenheim gets approval to channel 10% of its Macro Opportunities Fund towards Grayscale’s Bitcoin Trust, that’s another $500 million directed towards the crypto. Another quarter like what Grayscale saw could means hundreds of millions more dollars pushing bitcoin in the direction Paul Tudor Jones considers its path of least resistance – north.

Notably, while institutional interest continues to mount, retail investors continue to buy at a brisk pace. Simon Peters, analyst at investment platform eToro, noted last week that eToro saw a 66% rise in people holding a bitcoin position there, compared to its last all-time high in late 2017.

That’s usually a bearish sign – after all, bull markets end when the last potential buyers have entered the fray. And that’s exactly why they end. When there’s no one left to buy, prices have nowhere to go but down.

But for what it’s worth, Peters doesn’t see demand peaking today as it did in 2017.

“If we maintain the current rise, then $25,000 before the start of 2021 is in the cards. There will be some selling at $20,000, and this could see a short move backwards. But if bitcoin shrugs off this selling and continues rising, then New Year’s Eve at $25,000 is there for the taking.”

We could be at the cusp of a psychological barrier where, once bitcoin $20,000 is breached, higher prices beget more buying. It’s possible to envision another furious run-up in the end of December or January, similar in scope and pace to what happened in autumn 2017.

Or prices could falter well before then. Nobody knows, of course – not even Paul Tudor Jones, who warns that he doesn’t know what the next 10 or 20 years will bring, but will assume for now that bitcoin is mispriced relative to its potential, and “that the path forward from here is north.”

The situation, he says, reminds him of the internet bubble of the 1990s. “No one knew how to value it because of the world of possibility that lay ahead.”

I think he’s right. But every comparison with the internet should note that last time around, investors who got in at the wrong time lost $1.7 trillion.

Regards,

William Dahl
Editor, Southbank Investment Research

PS Like Paul Tudor Jones, we at Southbank Investment Research don’t know what the next 10 or 20 years will bring for cryptos. But Frontier Tech Investor’s Sam Volkering, who bought bitcoin at $12, is tracking a $13.2 trillion revolution that could come to pass much sooner – click here for more details.

Category: Investing in Bitcoin

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