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Disclaimer: The information presented does not constitute financial, investment, trading, or other types of advice and is solely the opinion of the writer. Ethereum [ETH] has seen rough times in recent weeks on the price charts. During the harsh drop on 12 May across the market, Ethereum had managed to hold on to the $1750-$1950 […]
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Bitcoin has struggled to capitalize on its recent bull run above $61,000 as traders continue to assess the impact of rising US bond yields on the cryptocurrency market. And now, with markets anticipating further interest rate growth in the 10-year Treasury note, an overvalued BTC/USD exchange rate is clueless about where to head next.
The pair has fallen by up to 13.87 percent from its record high of $61,788 (data from Coinbase) in the same period that saw the 10-year note yields achieving their 14-month high of 1.726 percent. The narrative is simple: investors have sold longer-dated government bonds en masse to seek opportunities in sectors that would benefit the most after the economy reopens, including energy and travel.
In turn, they reduced their exposure in markets that performed extremely well during the coronavirus pandemic, including technology stocks and bitcoin. Doubts emerged over their rallies’ longevity against the prospect of faster-than-expected economic growth in the US.
Bitcoin was still able to post a record high as more institutions showed interest in its potential to act as a hedge against inflation. Corporates, including Tesla, Square, and MicroStrategy, added the cryptocurrency to their balance sheets as an alternative to their cash reserves.
Meanwhile, Mastercard, Bank of New York Mellon, PayPal, Goldman Sachs, and Morgan Stanley launched or announced that they would integrate new bitcoin-enabled services into their traditional platforms, creating more pathways for rich investors to gain exposure in the cryptocurrency market.
Rising bond yields appear to be among the few headwinds before Bitcoin as the latter attempts to rally further higher. If interest rate returns on Treasurys rise, it would most likely strengthen the US dollar’s purchasing power, affecting Bitcoin, which boasts itself as an anti-fiat asset.
Nonetheless, the real question is: would the policymakers intervene if the yields rise above 2 percent? One macroeconomic expert thinks yes.
In an interview with Kitco, Chantelle Schieven, head of research at Murrenbeeld & Co, noted that the Federal Reserve would “jawbone the markets” if the yields rise above 2 percent. She stated the US central bank could start laying out a broad framework for capping interest rate returns on bonds. Nevertheless, it would take more Fed meetings before they reveal the easing forward guidance.
Ms. Schieven’s comments appeared ahead of the central bank officials meeting on Tuesday and Wednesday last week. Fed chair Jerome Powell stated that they would keep their benchmark rates near zero until 2024 or until they achieve a sustainable inflation rate above 2 percent and maximum employment in a follow-up press conference.
Mr. Powell did not provide any guidance on how the Fed would tackle the rising yields on the longer-dated Treasuries. That prompted Ms. Schieven to expect more closed-door meetings between the central bank officials before they reach a strategy to tackle the bond market sell-off.
“The central bank is in a very precarious situation, so they won’t be too quick to act one way or another, but you know there are going to be a lot of interesting closed-door discussions about the rise in bond yields,” she said.
The comments pointed towards a period of potential uncertainty for safe-haven assets, including Bitcoin and gold. It appeared that the rising yields could put a cap on the cryptocurrency’s and the precious metal’s growth, expectation of Fed’s intervention would also limit their declines throughout 2021.
Ms. Schieven stressed that investors should focus on real interest rates, which expect to remain in negative territory against a growing inflation threat.
Therefore, even a yield rise above 2 percent could prompt investors and traders to hold Bitcoin, providing the cryptocurrency a backstop for its next potential bull run.
Bitcoin is making headlines left and right on media outlets everywhere, but none more so than CNBC. According to a well respected journalist, during a segment on CNBC it was said that gold would be trading at $3,000 an ounce if it wasn’t for Bitcoin.
Here’s why that statement is probably true, and why the cryptocurrency will continue to take market share away from the aging shiny rock.
The digital narrative worked like a charm, and Bitcoin is now stealing any capital looking to park somewhere resistant to inflation.
Gold has traditionally served that purpose, and as the economy first began treading on thin ice, the ages old asset that was once the “standard” began to uptrend again.
Related Reading | Seller’s Remorse: Day Trader Dave Portnoy Swears Off Bitcoin
Gold eventually reached more than $2,000 an ounce at the height of its bull market. Natural profit-taking caused the price per ounce to pull back, but rather than go for another leg higher, capital well suited for gold made its way into Bitcoin instead.
Because Bitcoin exists, and money is pouring into the scarce cryptocurrency instead of gold, has prevented gold from trading at $3,000 an ounce, according to a statement overheard on CNBC today.
Statement on @CNBC today : if there was no #bitcoin , #gold would be trading at $3k today.
— Daniela Cambone-Taub (@DanielaCambone) February 19, 2021
The statement was shared in a tweet, fingering the blame on Bitcoin as the culprit for gold’s lack of price appreciation.
Charts don’t lie, fortunately, and comparing gold against Bitcoin definitely shows a correlation between when gold peaked and the cryptocurrency really took off.
The change took place just days after gold had topped, and publicly traded companies began buying BTC to add to company reserves.
That trend has now extended into the likes of Tesla, and more corporations are expected to follow suit and could be responsible for Bitcoin’s price appreciation.
Other reasons, however, are undeniably due to gold outflows from hedge funds and other investors. Even retail are now getting back into crypto, but are focused more on altcoins as the price per BTC becomes out of reach for the average person.
Related Reading | Chart Comparison Demonstrates Effectiveness Of Bitcoin Digital Gold Narrative
But even altcoins absorbing some of the capital that could have made its way into gold, is ultimately Bitcoin’s doing. It is because of the first ever cryptocurrency that the rest of the market exists, and according the the statement made on CNBC, is responsible for gold trading at under $2,000, let alone the $3,000 it would be otherwise.
Featured image from Deposit Photos, Charts from TradingView.com
After Elon Musk’s Tesla decided to invest $1.5 billion into the digital asset, Bitcoin’s registered a new high above $44,000. Perhaps Tesla’s investment policy could further the asset’s narrative as an institutional product. Analysts suggest that tech giant Apple should follow Tesla’s path into Bitcoin.
The publicly traded US firm worth more than $2 trillion could single-handedly make US a global crypto leader, for up to two decades, said Mitch Steves, an analyst at RBC Dominion Securities.
The analyst thinks that Apple could “immediately gain market share and disrupt the industry,” if the company launches into the crypto exchange business. According to Steves, such a development could allow Apple to unlock a “multi-billion dollar opportunity with a few clicks.”
Steves calculated the scenario based on how Jack Dorsey’s Square earned over $1.6 billion in revenue from Bitcoin in the third quarter last year.
In comparison, as of January, Apple boasts an active user base made up of 1.65 billion devices, while Square has 30 million strong monthly active users.
In addition, the analyst found that Apple’s Wallet service made significantly contributes to the firm’s growth. According to analysts, Apple could earn about $40 billion every year from a wallet-based crypto exchange.
Recently, Dan Weiskopf, portfolio manager at Toroso Investments believed that the tech firm should take a closer look at Bitcoin especially as a hedge against inflation. He stated that $10-20 billion worth of BTC could give Apple more profits in the long term compared to “aggressively buying back stock.”
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Over the past year, institutional investment is what many believe drove Bitcoin’s price to reach new ATHs. Moreover, new research found that the asset’s price surges seem to be driven less by hype and have instead gained more trust, based on data from 2017.
Among its many conclusions, ARK Invest stated in its “Bitcoin: Preparing for Institutions” report about how Bitcoin could reach new ATHs. Even if all S&P 500 companies were to allocate 1% of their cash to Bitcoin, the asset’s price would increase by approximately $40,000.
Institutional investors have lately been seeing Bitcoin as a tool to hedge risks of inflation and a long-term alternative to cash. Even ARK estimated that the digital asset is appearing to gain more trust and that certain corporations are even “considering it as cash on their balance sheets.”
Moreover, CryptoQuant CEO Ki Young Ju pointed out a 15,200 BTC worth ($500 million) outflow at Coinbase exchange. He believed the transaction indicated that entities are acquiring more BTC.
Massive Coinbase outflows. 15k $BTC at 32.4k
Looking at the TX, it went to custody wallets that only have in-going transactions. It’s likely to be OTC deals from institutional investors.
I believe this is the strongest bullish signal.
Chart 👉 https://t.co/20Dz85Y5mG pic.twitter.com/W2G7M9lpm1
— Ki Young Ju 주기영 (@ki_young_ju) February 1, 2021
Such investors can also manage to access Bitcoin in “sophisticated ways.” As of October last year, Bitcoin open interest also reached an all-time high on CME. Taking into account, the daily returns across asset classes during the past 10 years, ARK further suggested that allocations to Bitcoin “should range from 2.55% when minimizing volatility to 6.55% when maximizing returns.” The ARK Invest team further wrote:
Based on ARK’s simulated portfolio allocations, institutional allocations between 2.5% and 6.5% could impact bitcoin’s price by $200,000 to $500,000.
Source: ARK Invest
Michael Bucella, general partner at investment firm BlockTower Capital, recently spoke of “a large and emerging group of institutions with “enormous capital” that are reallocating to this crypto. He added:
…And if you think about the supply-demand model of a commodity, the supply curve is declining over time to effectively zero, and the demand is increasing exponentially.
However, Bitcoin has had a rather volatile few weeks with prices not entirely helmed by a bullish narrative. At press time, Bitcoin was over $35,000 and had roughly seen more than 3% hike in the last 24 hours. The fresh price action could have been a result of MicroStrategy’s additional purchase of 295 BTC.
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Bitcoin was halved for the third time in 2020. Under the influence of the epidemic, the price of Bitcoin did not rise as expected in the first half of the year. However, after entering the second half of the year, especially by the end of 2020, Bitcoin began to accelerate and exceeded 28,000. Then began to soar. At present, it has exceeded 30,000 US dollars, and Huobi is quoted at 33,963 US dollars.
In the atmosphere of the bull market, Bitcoin believers called out clear price targets, such as $55,000, $100,000, and $288,000. So why do people believe that Bitcoin will rise to $100,000? This is mainly due to two people, Saifedean Ammous and PlanB.
Professor Saifedean Ammous first introduced the “stock-to-flow” model of the commodity market in his 2018 book “Bitcoin Standard” to explore the scarcity of Bitcoin. In March 2019, PlanB used the “stock-to-flow” (stock-to-flow) model for the first quantitative study of Bitcoin’s scarcity and price.
PlanB found that in the logarithmic form of stock/production ratio (S2F, a quantitative form of scarcity) and market value, gold, silver, and Bitcoin are on a straight line of regression.
The current gold stock/production ratio (SF) is 62, and the market value is 8.5 trillion US dollars; the silver stock/production ratio (SF) is 22, and the market value is 308 billion US dollars. After the halving in May 2020, the Bitcoin stock/production ratio (SF) will rise from 25 to 50. Therefore, it is estimated that the market value of Bitcoin will rise to $1 trillion, which is equivalent to the price of Bitcoin at $55,000.
On April 28, 2020, PlanB improved the previous “stock-output” model and obtained the “stock-output cross-asset model”. He found four definite Bitcoin clusters, and each cluster has a very different S2F-market capitalization combination, which in turn is consistent with the halving and changing Bitcoin narrative. 1. Bitcoin “proof of concept” (S2F 1.3, market value of 1 million US dollars); 2. Bitcoin “payment” (S2F 3.3, market value of 58 million US dollars); 3. Bitcoin “electronic gold” (S2F 10.2, market value of 5.6 billion U.S. dollars); 4. Bitcoin “financial assets” (S2F 25.1, market value of 114 billion U.S. dollars).
These four Bitcoin clusters, together with the S2F-market value of silver and gold, will form a perfect straight line with an R2 value of 0.997.
From 2020 to 2024, the S2F of Bitcoin will be between 50-56. Calculated by 56, the market value of Bitcoin will reach 5.5 trillion U.S. dollars, and the price of a single Bitcoin will be as high as 288,000 U.S. dollars.
Based on the above model of scarcity and market value, coupled with the common market hype, some people dare to call out that the price of Bitcoin will reach 100,000 US dollars or even far exceed 100,000 US dollars.
Of course, PlanB’s S2F valuation model describes the long-term law, and the short-term market is affected by many factors.
However, scarcity alone does not guarantee a high price. It must really meet people’s needs. It would be better if a consensus can be reached among most people. And does Bitcoin meet people’s needs?
Therefore, cryptopunk Jameson Lopp said, “Bitcoin is mooning, it just hasn’t reached your country yet.” Bitcoin has broken new highs, but it hasn’t reached your country yet. TheCryptoLark said, “Every dollar printed is a dollar spent on advertising bitcoin” every fiat currency printed is an advertisement for bitcoin.
However, it must be remembered that Bitcoin is ultimately a social experiment. Satoshi Nakamoto once said on the forum: “I’m sure that 20 years from now, Bitcoin will either be awesome or will not succeed. There is no third option.”
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