Strong Institutional Demand
Many analysts and Bitcoin proponents emphasized that increasing adoption of digital currencies among institutional investors and companies that provide financial services have largely contributed to the Bitcoin rally in 2020.
Legendary investors like Paul Tudor Jones and Mike Novogratz voiced their support for Bitcoin a few months ago and estimated its largest gains are yet to come. Bitcoin received an additional boost in October when PayPal announced the platform will allow trading and holding cryptocurrencies.
Also, many investment banking companies believe Bitcoin is another hedge asset, like gold. Strategists at JPMorgan said this week that Bitcoin will replace gold in the long-term thanks to the increasing adoption of cryptocurrencies among institutional investors.
Guggenheim Global Chief Investment Officer Scott Minerd said Wednesday Bitcoin should be worth $400,000 because of its limited supply and value compared to gold.
Sell-Off as We Head Into 2021?
Opinions among analysts on how Bitcoin is likely to end the year are divided. Data from Bitcoin’s technical chart suggests there could be a 25%-30% Bitcoin sell-off at the start of 2021, said Miller Tabak head market strategist Matt Maley.
“There’s no question it’s been a melt-up, and it could last a little bit longer,” Maley said. “I think on a short-term basis it could continue a little bit longer, and I’m very bullish on it on a very long-term basis. But intermediate-term, I’m a lot more concerned than I think a lot of other people.”
Maley said the market’s excess liquidity is one of the issues. This excess money was driving the strong rally in tech stocks during the summer, and now it’s driving Bitcoin, he added.
“The problem is it’s now taken the weekly [relative strength] chart on bitcoin to a very, very high level,” he said.
He also pointed out that investors shouldn’t forget that Bitcoin is a very volatile cryptocurrency as it has seen ten drops of 20% or more, seven declines of 30% or more, and four declines of 48% or more since 2016.
Similarly, the founder and chief economist of Rosenberg Research, David Rosenberg, said he thinks that Bitcoin is in a “massive bubble” and that investors don’t understand how its supply works.
"You speak to most people that are asking me to put money in bitcoin, they can't even tell you who the person was that developed it or even how it's actually mined," Rosenberg said. "It's just a classic, follow-the-herd, extremely crowded trade. It's in a massive bubble."
He also voiced his doubts that Bitcoin has a limited supply and that only 21 million BTC can be mined.
"Everybody seems to believe that we're going to get to that 21 million caps on the supply constraint, but there's really nothing in the protocol to suggest that the supply of bitcoin can't go up once we hit that limit," Rosenberg said.
He also said that investors don’t really know the dynamics of Bitcoin’s supply curve even though the majority thinks they do.
Rosenberg pointed out that the last time Bitcoin performed with this kind of a “speculative fervour” its price crumbled in the following period, however, Bitcoin supporters think that this year’s rally is different as it has been fueled by institutional investors.
Today, Bitcoin trades at $22,826.50 as of 08:30 a.m. EST.
Bitcoin hit a new all-time high of $23,770.85 on Thursday, marking a 200% rise since the start of the year. Bitcoin proponents believe the best is yet to come, thanks to signs of increasing adoption of Bitcoin among institutional investors and its safe-haven appeal.
However, some economists, like David Rosenberg, believe that the world’s largest digital asset is a big bubble and that its investors don’t understand how its supply works.
About the Author
As an analyst of global affairs, Adriaan has an MSC from Oxford, with diverse interests in the digital economy, entertainment, and business. He is a specialist trainer in Advanced Analytics & Media.