Cryptocurrency Rally: Is it Really Different This Time?

Institutional investors could drive cryptocurrency Bitcoin to $400,000 says one fund manager

Frank Holmes | January 12, 2021 | SmallCapPower: Bitcoin, the world’s biggest cryptocurrency, has surged nearly 220% this year, touching an all-time high of $23,717 in intraday trading last Thursday.

(The following is an article originally published on usfunds.com on December 21, 2020)

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Ethereum, meanwhile, has shot up almost 400% this year to around $640, which is still down 31% from its record high.

I’ve seen numerous market “experts” declare this another crypto bubble similar to 2017. But unlike then, the current run-up is driven not just by retail investors but also big-name investors, institutions, hedge funds and more.

Those include people like billionaire investor Paul Tudor Jones, who’s buying Bitcoin in response to unprecedented money-printing, as well as firms like Massachusetts Mutual Life Insurance (MassMutual), which purchased $100 million of the digital currency earlier this month.

Although $100 million is a relatively small position for the insurance company, it was enough to turn some heads.

“MassMutual’s Bitcoin purchases represent another milestone in the Bitcoin adoption by institutional investors,” JPMorgan strategists wrote in a recent note to clients. “One can see the potential demand that could arise over the coming years as other insurance companies and pension funds follow MassMutual’s example.”

Another Bitcoin bull is Scott Minerd, chief investment officer of Guggenheim Investments, which has $233 billion in total assets under management (AUM).

Speaking to Bloomberg on Wednesday, Minerd said he believes Bitcoin should be worth—are you sitting down?—$400,000. HIs outlook is based on Bitcoin’s scarcity and relative valuation to gold as a percent of GDP.

“Bitcoin actually has a lot of the attributes of gold and at the same time has an unusual value in terms of transactions,” he said.

Crypto miners and blockchain firms have likewise done well this year. I’m pleased to tell you that HIVE Blockchain Technologies (TSXV:HIVE) was up nearly 2,800% YTD as of Friday, which has pushed its market cap above C$950 million. This puts it on a trajectory to hit a C$1 billion valuation before the end of 2020.

Keep in mind that cryptos is still extremely volatile. Bitcoin, for instance, has a daily standard deviation of plus or minus 5%. They may not sound like a whole lot until you compare it to gold, which has a daily standard deviation of only 1%.

Coinbase Files for IPO

Soon there may be another way for investors to participate in cryptocurrencies besides buying them outright or investing in miners like HIVE. In a press release last week, the North American crypto trading platform Coinbase said it submitted paperwork with the Securities and Exchange Commission (SEC).

The Silicon Valley unicorn is valued at an estimated $28 billion, according to data firm Messari, and sees around $1 billion in trading volume every day.

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