The second bitcoin growth: whale watching and the greenback

Bitcoin (BTC) was one of the best investments of 2020. How “best”? It traded at $ 19,250 on December 7, after starting the year near $ 7,000 in January and depreciating to just $ 5,400 in early March.

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In fact, the value of the 18,564,675 Bitcoin in circulation is $ 356 billion. For comparison: the market capitalization of JPMorgan Chase (NYSE:JPM), the largest bank in the country, is $ 372 billion.

The price of the imaginary asset has nearly doubled since mid-September. While bitcoin has risen, the dollar has fallen. It is now 12% lower than it was in April and trades at 90.81.

The BTC value is not a coincidence

Your stock portfolio may look nice but is valued in dollars. The value of the dollar, like the value of everything else, can be volatile. During the current pandemic, the Federal Reserve has flooded the market with new dollars. This has had an impact on the price.

Goldman Sachs (NYSE:GS) and Morgan Stanley (NYSE:MRS) both see a further slowdown in 2021. This hurts the exporting countries, which are dependent on a strong dollar. The global financial system is tense.

Bitcoin has become a great hedge against the dollar. But given the small size of the market – Facebook (NASDAQ:FB) is worth more than twice as much as Bitcoin – all institutions that use this protection will quickly become “whales”, ie large enough to shift prices. Currently, 95% of all Bitcoin is held in just 2% of the accounts.

Non whales

This is a little misleading because some of the biggest new “whales” are not real whales at all.

PayPal (NASDAQ:PYPL) and square (NYSE:SQ) are the new big buyers of Bitcoin. Small investors can now buy Bitcoin directly through PayPal and Square apps.

It seems like a new app is available every day to make this bitcoin investment even easier. One reason for this is the increasing use of crypto in everyday transactions.

“The industry is already in the speculative phase and has reached a point where freelancers and freelancers are paid in BTC. People are giving it as gifts rather than cash,” said Ouriel Ohayon, co-founder and CEO of Digital Wallet ZenGo. He told InvestorPlace that customers made more than $ 100 million in the app’s first year of operation.

And while many of those using the new apps are typical retail investors, they hear what the whales say when they knock on the table for bitcoin, including Paul Tudor Jones, who compares investing in bitcoin today to the early stages of a tech company . In a thin market, a big trader can move it. Since Bitcoin is easier to buy, this effect is amplified, with small fish following big fish.

Institutional support

Institutions can buy Bitcoin through the Grayscale Bitcoin Trust (OTCMKTS:GBTC), the price of which has doubled within six months. The trading volume increased in November. JPMorgan analysts believe this is how wealth managers and people running family businesses got into Bitcoin. Fidelity Investments is also developing a Bitcoin escrow instrument. Institutional investors, just like smaller ones, can develop a FOMO (Fear of Missing Out).

However, the new whales are different from the old whales, who were mostly early holders of bitcoin and were determined to keep the market trade thin. The new whales are institutions that trade for customer accounts.

Some want Bitcoin the way their fathers kept gold as a hedge against inflation. The older hedges don’t work. The SPDR Gold Trust (NYSEARCA:GLD) saw a rally earlier this year. Others trade among themselves, but the balance is such that the “whale” who runs the accounts stays in the market.

The Bitcoin conclusion

Regardless of whether Bitcoin is a real good or not, it’s a real market. Even Nouriel Roubini, Bitcoin’s fiercest critic, now admits that it can be “a store of value”.

This means that Bitcoin is a real thing if you love it or hate it.

All assets rise and fall relative to other assets. No money is “real”. It is only real when it is exchanged for something else of value. It all depends on belief, whether it’s the value of Bitcoin or JPMorgan Chase stocks.

The more institutional investors buy into Bitcoin, the greater the status as a real asset becomes. Investors who once promoted gold are now touting Bitcoin as the ultimate inflation hedge. As long as they believe in it, Bitcoin has real value.

At the time of publication, Dana Blankenhorn held positions (neither directly nor indirectly) in any of the securities mentioned in this article.

Dana Blankenhorn has been a finance and technology journalist since 1978. He is the author of the environmental thriller Bridget O’Flynn and the Bear, which is available on the Amazon Kindle Store. Write to him at [email protected] or follow him on Twitter at @danablankenhorn.

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