Think cryptocurrency and you can’t help but think of Bitcoin. The crypto-asset may occasionally be confused with cryptocurrencies as a whole, almost as a genericization and it’s easy to understand why: it’s the most well-known and easily one of the most valuable. And in recent weeks, the price of Bitcoin hit yet another all-time high.
With one Bitcoin costing you a staggering US$38,146 at the time of publishing (just one month ago it was worth a little over $19,000), the crypto-asset has seen a stratospheric surge in value recently. But what exactly has caused it and can we expect the trend to continue to the point where Bitcoin will cost ungodly sums of money. To find out, DMARGE reached out to Matt Harcourt, an analyst at Apollo Capital, Australia’s leading crypto-asset investment firm.
Before reading on; a quick disclaimer. Matt can’t and doesn’t provide investment advice, but instead provides an analytical view of the current market which can help you to make your own investment decisions.
“There are many factors that impact the price of Bitcoin”, Matt begins, “and it is extremely hard (if not impossible) for individuals to be able to explain the day to day price movements of the asset. The recent price explosion can be attributable to the culmination of broad themes that have been impacting the market all year as well as a big dose of FOMO from retail and even institutional buyers.”
“The COVID pandemic resulted in a significant increase in the money supply of developed countries.”
“When there is such a large depreciation in a country’s currency, individuals look to store their value elsewhere in order to keep up with inflation and maintain their wealth. This forced an incredible amount of money into the stock market, resulting in unjustifiable valuations and a crowded market.”
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“With the stock market looking less attractive as the pandemic worsened – but valuations kept soaring – savvy investors such as Paul Tudor Jones looked elsewhere for investment opportunities that the broader market wasn’t looking at yet, this investment opportunity was Bitcoin.”
“On the 11th of May 2020, Paul Tudor Jones appeared on CNBC television stating that Wall Street could be witnessing the historic ‘birthing of a store of value’ through Bitcoin. At the time the price of Bitcoin was around US$9,000 and Paul’s views were not shared widely in the hedge fund community.”
“However, this was the very start of Bitcoin’s current price run as Paul forced other big investors to take a deeper look into the asset. Following this interview, there have been many notable investors such as Stanley Druckenmiller who have come out and praised Bitcoin for being a scarce, non-sovereign and a fundamentally unique store of value that looks extremely attractive in a world of excessive quantitative easing and negative interest rates.”
“Apart from excessive money printing, the COVID pandemic also resulted in the rapid digitalisation of business and society as we know it. Workers were forced to use Zoom day in day out, grandmas had to learn how to shop online, and we increased our reliance on online financial services. Individuals in isolation had more time to learn about crypto and more importantly, a lot of people learnt to trust the technology.”
So, with the obscenely high value explained as best as possible, have you missed the boat in terms of being able to make the best possible return on investment, or is there still plenty of time to make a considerable profit?
According to Matt, the latter option is true.
“Bitcoin is prone to excessive swings due to the extreme FOMO felt by the market, this FOMO mostly stems out of the fact that the broader market does not understand the asset properly and retail buyers are mostly interested in making a quick buck. These people are likely to ‘YOLO’ market buy their entire stack and pray that ‘number goes up’ over the next 48 hours before they sell.”
However, while he admits the price of Bitcoin will likely increase if this pattern of behaviours continues, it doesn’t necessarily mean you should point your browser to the crypto market and buy, buy, buy.
“In my opinion, there is a lot of this happening right now and this will inevitably come to an end. I do not think right now is a good time to enter the market. However, a good time to enter the market may come in 1, 2 or 3 months as I think Bitcoin will end 2021 at a higher price.”
“Bitcoin Perma bulls such as myself will argue that the price of Bitcoin will continue to increase over the long term due to the fact that there is a ‘broken’ (I use that word loosely) financial system that will inevitably be replaced by the more open, fair and efficient system that is Bitcoin and blockchain technology (Ethereum, Decentralised Finance).”
“If you’re a complete beginner, do the research and increase your knowledge on Bitcoin and how it fits into macroeconomics and the evolution of money. Once you understand this, short term price swings will no longer affect you.”
That’s not to say you shouldn’t invest right now. You can, after all, make your own decisions, and if the price of Bitcoin closes at a higher price at the end of 2021 than its current one, then who knows – perhaps you still stand to make a sizeable return if you invest today.
For extra help with investment options and advice, speak to the team at Apollo Capital.