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Bitcoin gains 50% in a month: Where to next?

Derek Rose
·5-min read
New virtual money concept, Gold Bitcoins ( btc )  is Digital crypto-currency use blockchain Technology for
What's happening with Bitcoin? Image: Getty

Cryptocurrencies are surging again, with the Bitcoin price on Friday breaking $US15,000 for the first time since January 2018 after a nearly 10 per cent move overnight.

The volatile token has gained about 50 per cent in the past month, going from around $US10,600 in early October to briefly reach $US15,920 around noon on Friday before retreating back down to where it sits now around $US15,500.

Henrik Andersson, chief investment officer with Melbourne-based crypto-asset investment firm Apollo Capital, says there could be a lot more further upside.

“We think there’s a good chance we will see a new all-time high in Bitcoin this year,” Andersson told Stockhead on Friday.

The digital asset traded close to $US20,000 back in December 2017 but only held there briefly, dropping to around $US11,000 by January 2018 and around $US3,700 by December 2018.

But its value has more than tripled since hitting a one-year low in March, when risk assets of all sorts sold off at the height of coronavirus fears.

This week’s Bitcoin price move higher was to some extent under the radar, with much of the world’s attention still focused on the US election. But Kraken Australia managing director Jonathon Miller said there was a connection between those two things.

“There’s generally uncertainly in markets right now, and markets react to uncertainty in very different ways,” he said. “If one thing is certain right now, it’s uncertainty.”

But the reasons for the asset surging go well beyond the US election, according to both Andersson and Miller.

Increasing mainstream acceptance and utility

“There’s just been news item after news item around institutional adoption,” Miller said.

In August, Fidelity Investments – one of the largest asset managers in the world – launched a Bitcoin fund for qualified investors and in October suggested keeping five per cent of one’s portfolio in the cryptocurrency.

Last month Paypal also announced that it would allow users to buy and sell cryptocurrency, as well as significantly increasing its utility by making it available as a funding source for purchases at 26 million merchants worldwide.

Also, Microstrategy (NASDAQ:MSTR) announced in September it had bought a total of 38,250 bitcoins for a total of $US425 million, while US fintech giant Square (NSYE:SQ) said last month it bought 4,709 bitcoins for a total price of $US50 million.

“That’s deep acceptance by the institutional mainstream,” Miller said of Microstrategy’s purchase.

“They’re an audited listed company, and their board of directors have signed off on it, and the investors are happy with it.”

Apollo Capital opened three years ago to wholesale investors and, in a sign of increased mainstream acceptance, has recently added institutional investors as clients in what’s likely a first for Australia, Andersson said

“We are seeing a lot of interest from family offices, looking to add it to their portfolios,” he said.

The Reserve Bank of Australia even announced on Monday it was partnering with Commonwealth Bank (ASX:CBA), National Australia Bank (ASX:NAB), Perpetual (ASX:PPT) and ConsenSys Software on a research project exploring the implications of a central bank digital currency as a token on the Ethereum platform.

Other countries are exploring the idea as well, with the governor of Sweden’s central bank releasing a paper last month advocating an “e-krona” issued as sovereign digital currency by the Riksbank.

Andersson said what’s driving the recent crypto rally is simply the monetary stimulus measures such as quantitative easing and ultra-low interest rates – which amount to printing more money – which are driving up demand for scarce assets.

Another crash?

Still, the 2018 crash and subsequent “crypto winter” left many investors skittish about getting burned again.

“We definitely have seen many cycles in the past,” Andersson said.

At the height of the bubble in December 2017 and January 2018, the Bitcoin price surged to US$20,000 and the cryptocurrency market reached a total valuation of $US1 trillion. Now it’s around $US400 billion. “So it’s still got a ways to go,” he said.

This time around market is driven being driven much more on fundamental reasons than “fear of missing out,” according to both men.

“This is not a FOMO bull run, this is a fundamental price move based on very good reasons,” Miller said.

Andersson wouldn’t recommend specific coins, but he said the investment firm did see a lot of value in decentralised finance and “we are heavily investing in that.”

“Defi” tokens like Chainlink, Dai, Maker, Uniswap and Synthetix create lending and financial services via self-executing “smart contracts” without the need for banks and lawyers.

He also noted the upcoming launch of “Ethereum 2.0”, which will make a number of upgrades to the platform.

Miller was very bullish about the overall state of the market.

“It’s hard to see what will happen next, and I’m not making any predictions, but the signals are so strong,” he said.