Institutional curiosity in risky Bitcoin may hit document highs in 2021

Investors in Bitcoin (CCC:BTC) expect year-to-date returns of more than 150% (YTD). In other words, $ 1,000 invested in cryptocurrency back in January would now be worth more than $ 2,500.

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Bitcoin was around $ 7,000 in January and is currently hovering around $ 18,400, while the market capitalization (cap) is around $ 340 billion. For comparison: The S&P 500 The index, which hit an all-time high in early December, is up about 17% year-to-date and has a market capitalization of over $ 30 trillion.

In November, risk appetite rose in broader markets as well as in cryptocurrencies. Decreasing uncertainties about the results of the presidential elections, positive vaccine news from Pfizer (NYSE:PFE), BioNTech (NASDAQ:BNTX) and Modern (NASDAQ:MRNA) and discussions about possible further economic stimuli have meant new highs for many stocks, indices and cryptocurrencies.

Bitcoin started at around $ 10,400 in October. It was just under $ 20,000 as of December 1, up over $ 19,783 – the previous record it had seen in December 2017.

As an alternative asset class, the cryptocurrency market is still in its infancy and evolving. Given the recent price rally, BTC is likely to be volatile in the final weeks of the year as some investors may decide to call the cash register and take profits. However, I expect BTC to offer significant returns for long-term investors with a 2-3 year horizon. Let’s see why.

The crypto market continues to grow

Over the past decade, financial technology (fintech) has grown significantly, leading to significant price increases for companies like Visa (NYSE:V.), Paypal (NASDAQ:PYPL), and square (NYSE:SQ).

The great recession of 2008-2009 contributed to advances in the digitization of money and the birth of cryptocurrencies. When the global financial crisis hit over a decade ago, the public questioned broader markets and some of the actions central banks around the world had taken in a currency-centric, interconnected global financial system.

Bitcoin’s history also dates back to 2009 when the world first heard about cryptocurrencies. Now are there over 1,600 different cryptocurrencies available to investors. However, with its first mover advantage, Bitcoin gets the most attention and market capitalization.

Investors are drawn to cryptocurrencies for many reasons. For example research from Linda Schilling by E.Cole Polytechnique, CREST, France and Harald Uhlig of the University of Chicago highlights how Cryptocurrencies like bitcoin are not controlled by central banks or central institutions. [S]Several functions differentiate Bitcoin, for example, from Visa, Paypal and cash such as censorship resistance, transparency and trading speed. These properties can be important for future research when thinking about Bitcoin speculation. “

The current pandemic has also increased reliance on e-commerce and contributed to the use of digital wallets and e-money. Meanwhile, the institutional demand could be growing indicate that Bitcoin will continue to hit new record highs in 2021. JPMorgan Chase (NYSE:JPM) suggests that Bitcoin could potentially “largely replace gold” which could lead to a “significant” uptrend as it competes with gold as an alternative currency.

After all, regular readers would likely know that PayPal allowed its US customers to buy and sell Bitcoin and other cryptocurrencies directly from their accounts in October.

The bottom line with Bitcoin

Bitcoin is a hot investment theme. Given the recent sharp rise in prices, we can assume that some investors in BTC will soon be getting some of their paper profits. A possible drop to $ 16,000 or less could provide a better entry point for potential investors.

The Grayscale Bitcoin Trust (OTCMKTS:GBTC) could be a way to access Bitcoin. So far, it’s up 145% a year. Fidelity Investments In addition, legal proceedings were recently launched to set up the first ever Bitcoin mutual fund. If the current level of institutional interest could be viewed as a bullish sign, BTC’s market cap could potentially reach $ 1 trillion in the new decade. Support from millennials is expected to contribute to this demand and further cement Bitcoin’s status as a means of payment and wealth storage.

Those market participants who don’t want to see the daily turmoil in BTC could invest in stocks of companies leading the fintech revolution and are among the institutions showing interest in Bitcoin.

Examples of Exchange Traded Funds (ETFs) that enable exposure to cryptocurrency and blockchain, the technology behind these digital assets, are the Amplify Transformational Data Sharing ETF (NYSEARCA:BLOK), the ARK Next Generation Internet ETF (NYSEARCA:ARKW), the First Trust Indxx Innovative Transaction & Process ETF (NASDAQ:LEGR), the Goldman Sachs Innovate Equity ETF (NYSEARCA:GINN), the Innovation shares NextGen Protocol ETF (NYSEARCA:COIN), and the Siren Nasdaq NexGen Economy ETF (NASDAQ:BLCN).

At the time of publication, Tezcan Gecgil had positions (neither directly nor indirectly) in the securities referred to in this article.

Tezcan Gecgil has been involved in investment management in the US and UK for over two decades. In addition to formal higher education in the field, she has also completed all three levels of the Chartered Market Technician (CMT) exam. Her passion is options trading, which is based on the technical analysis of fundamentally strong companies. She especially likes setting up covered calls to generate income on a weekly basis.

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