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Crypto coin During the week from late December 2020 to early January 2021, bitcoin price soared from $20,000 to $40,000 per unit, reaching its all-time high. On March 17, 2021, bitcoin costs $54.7 thousand. Moreover, during almost all of last year it was trading at an average of $10 thousand, and during the global lockdown in the spring it fell to $5 thousand, but quickly recovered.
Some investors point out that the market has been preparing for correction for a long time, and the jumps in bitcoin rate mean that the process has begun. Others, on the contrary, tend to believe that in the long run, bitcoin will be worth many times more. Thus, strategists from JPMorgan Chase predicted for Bloomberg growth of the cryptocurrency rate up to $146 thousand, explaining this process displacing gold as a protective asset. In addition, experts believe that the convergence of volatility between bitcoin and gold is unlikely to happen momentarily, most likely, it will take several years. "A theoretical price for bitcoin above $146,000 is most likely the long-term goal - it won't happen in the next few years," JPMorgan experts emphasize.
Why people still invest in bitcoin? Is it a reliable tool and does digital currency have a future at all?
Diversification for the sake of diversification
At the end of March 2020 bitcoin bitcoin price began to rise gradually and already in October rose to $ 10.7 thousand and closer to the middle of December, literally flew up and for a few days rose in price twice. Most international experts attribute this growth to the governments' response to the risks of an economic collapse caused by COVID-19. As a serious economic downturn could not be allowed to happen, countries around the world flooded the global markets with money - it went both to traditional platforms and digital assets. In a situation of global uncertainty, bitcoin became a hedge against looming inflation and low returns on other asset types.
In May 2020, prominent American billionaire, trader and philanthropist Paul Tudor Jones announced that he had moved nearly 2% of his portfolio into bitcoin. He motivated this by the fact that governments spend more than they earn, and the increased amount of stimulus to economies could lead to a depreciation of traditional currencies. However, Jones stressed that investing a higher percentage of a portfolio in cryptocurrency is an unwarranted risk. "It's a very young currency, only 11 years old. Bitcoin hasn't yet stood the test of time like gold," he said.
According to CoinDesk, by the fall of 2020, the large British investment fund Ruffer had invested 2.5 percent of its assets in bitcoin (totaling $27 billion in assets). According to the official information, where Ruffer motivated its decision, the fund's experts felt that in the current environment, investing in bitcoin is an effective hedge against the ongoing devaluation of the world's major currencies. "Bitcoin diversifies the fund's larger investments in gold and linker bonds (whose par value is indexed to inflation) and acts as a hedge against monetary and market risks," the paper said.
Another prominent investor, Tyler Winklevoss, said in an article in Winklevoss Capital that bitcoin could be seen as a good asset for investors who want to hedge against inflation over the long term. "Bitcoin is not just a scarce commodity, it is the only known commodity in the universe that has a deterministic and fixed supply. As a result, bitcoin is not subject to any potential positive supply shocks that gold (or any other commodity for that matter) may face in the future," Winklevoss explained.
The future today
State intervention in the cryptocurrency market is increasing every year. For example, on December 23rd of last year, the U.S. Securities and Exchange Commission accused the cryptocurrency platform Ripple of selling $1.3 billion in unregistered securities in the guise of XRP (Ripple) tokens. As a result, Ripple plummeted more than 40 percent.
According to Gavin Davis, head of Fulcrum Asset Management, many investors are concerned about how this kind of financial regulation in the U.S. will change in the future. In his column in the Financial Times, he expressed wariness about the arrival of a new, Biden-led government. Davis noted that the Treasury Department would be led by former Fed Chair Jeannette Yellen, who said back in 2017 that bitcoin was a highly speculative asset and could not be considered a stable means of savings. Investors fear that cryptocurrency as a private means of payment will never become an equal substitute for traditional currencies. This is because digital currency will simply be regulated - the trend is already underway.
Tom Lee, a senior Wall Street analyst at Fundstrat, suggested in an interview with CNBC that despite financial regulations and legal issues, cryptocurrencies will continue to grow rapidly. For example, bitcoin, he predicted, could quadruple in 2021. "Bitcoin's growth will be similar to what was seen in 2017 - both then and now we see parabolic movements, that is, it is a similar rally," he believes.
Chainanalysis thinks somewhat differently: the growth of quotations this year will be different from 2017, because then cryptocurrencies were bought mostly by small Asian investors, and starting from 2020, institutional investors and large companies, mostly from the US and Europe, began to buy. "Cryptocurrency exchanges register transactions with significant amounts, which may indicate the participation of large investors in the transactions," Chainanalysis analysts said. They believe that while no one can know for sure if bitcoin's price will rise or not, the current surge in cryptocurrency market activity offers some hope for the future.
"A comparison with 2017 shows that investors have become more savvy and more strategic, buying bitcoins to fulfill a specific use case scenario rather than speculating on a new asset. If bitcoin can continue to be an effective hedge against macroeconomic trends, we think more and more institutional investors will invest in the asset, leading to stronger cryptocurrencies," experts conclude.
Following the "bitcoin."
During the same period that bitcoin rose from $20,000 to $40,000, the price of Ethereum (ETH) rose 50%, from $320 to $480. The Binance exchange token (BNB) was cheaper to $18 in September, but is now worth 55% more at $28. The Ripple token (XRP) has grown by 32% over the same period and is now trading at $0.3.
Meanwhile, in 2017, when bitcoin reached a then-record $20,000 and then began to decline, other cryptocurrencies, on the contrary, accelerated growth. For example, the XRP token rose 450% to $3.8. The price of Tron (TRX) token behaved similarly. It grew as bitcoin prices fell and ended up adding as much as 700%.
In general, alcoins are considered no less promising as an investment option than bitcoin. For example, last year, payment services Square and PayPal, with a combined audience of about 300 million people, added the ability to buy, sell and store Bitcoin (BTC), Ethereum (ETH), Litecoin (LTC) and Bitcoin Cash (BCH) to their applications. In addition, payment system customers were able to pay with these cryptocurrencies in 26 million storе.
Market analyst Thomas Jung in his note on Nasdaq in addition to the major cryptocurrencies like bitcoin and ether highlighted others, not less, in his opinion, promising in 2021. The list included: Stellar (XLM), Cardano (ADA), Dogecoin (DOGE), Polkadot (DOT), Neo (NEO), Celsius (CEL), Nano (NANO), Chainlink (LINK), Monero (XMR), Tether (USDT), Litecoin (LTC), Binance Coin (BNB), NEM (XEM), Tron (TRX), Dash (DASH), Zcash (ZEC), Bitcoin Gold (BTG), Bitcoin Cash (BCH), Bitcoin SV (BSV), EOS (EOS), VeChain (VET), Dai/MakerDao (DAI). However, the expert warns: there are significant risks because cryptocurrencies have no intrinsic value. "Instead, their value comes from users. The more users a coin has, the more useful it is and the higher its price.
But when a coin loses popularity, there is nothing to stop it from falling to zero. That means investing in cryptocurrency requires a firm belief that others will end up buying it from you even more dearly," Jung explains.
States to go there, too
In any case, while in 2017 there were those in the expert community who did not believe in cryptocurrency and considered it a bubble, in 2021, both governments and central banks in many countries began to explore the possibility of launching their own digital currencies. For example, China has launched a digital version of the yuan, and Russia is discussing the launch of the digital ruble. Kazakhstan is also in the trend. The National Bank of Kazakhstan, along with 28 central banks of other states, is involved in the development of electronic money, is studying various approaches and is an observer in pilot projects to introduce digital currency in the PRC, a number of countries in Southeast Asia, Canada, Singapore and the European Union. According to analysts, the National Bank of Kazakhstan is developing a report on the prospects of introducing digital currency in the country. According to the plan, it should be published in the second half of 2021.