As the price of Bitcoin continues to soar, we take a look at what triggered this recent rally & how far is the Bitcoin price going to rise in the future.
Bitcoin, the world’s largest cryptocurrency, crossed the previous record high of $64,000 to touch lifetime highs of around $66,000 on Wednesday. The cryptocurrency has surged more than 120% this year and has trumped virtually every other asset class by a mile.
Matt Dibb, COO of Singapore-based Stack Funds told Reuters, “We think its going to go higher, and we can get to 80 or 90,000 by the end of this year easy, but that won’t be without volatility.” Dibb also said that he expected traders would rotate out of bitcoin and into major ‘altcoins’ — other cryptocurrencies.
Why This Happened?
Market players said that the recent wave of buying has been due to the launch of the first U.S. bitcoin futures-based exchange-traded fund (ETF). The fund called the ProShares Bitcoin Strategy ETF was listed in the U.S. on Tuesday and it debuted as the second-most heavily traded fund on record, according to Bloomberg. The ETF is trading under the ticker BITO, and it jumped around 4.9% to $41.94, with over 24 million shares changing hands on Tuesday, according to data compiled by Bloomberg.
More About The ETF: The ProShares fund is based on futures contracts and was filed under mutual fund rules. The fund will track Bitcoin prices via futures contracts traded at the Chicago Mercantile Exchange (CME). Future prices are made on bets made by trades on an asset’s price in the future. They do not involve ownership of actual bitcoin or trading on spot prices.
Instead, the CME calculates a Bitcoin Reference Rate (BRR) during a one-hour window based on trade flow from major spot exchanges. A Bitcoin ETF based on future prices at the CME will not present a regulatory problem because the Commodity Futures Trading Corporation (CFTC) oversees the CME.
Hiccups Along The Way
The Securities and Exchange Commission (SEC) has rejected several applications for funds that track the spot prices of Bitcoin. The reason behind the agency’s move was that it was the volatility of cryptocurrency prices and the possibility for price manipulation in Bitcoin’s largely unregulated ecosystem. Also, major crypto exchanges, which are used to set spot prices for bitcoin exchange-traded products, are not registered with the SEC. This makes it difficult for the SEC to verify their trade flow.
Gary Gensler, the chairman of the SEC, has repeatedly referred to the crypto ecosystem as a “Wild West.” Gensler has also asked Congress to bring crypto exchanges under his supervision. However, compared to his predecessor, Jay Clayton, Gensler has been viewed as being more open-minded toward crypto. When talking about the ProShares, Gensler said that it provides “significant investor protections.”
The approval of Bitcoin ETF was long-awaited as it could open the path to the infusion of massive investments by institutional investors. Now that the approval has been given, this could be the first step towards crypto being accepted as a legitimate asset class in the finance industry. Jesse Proudman, co-founder and chief executive at Makara, a crypto advisory firm, told Bloomberg, “It’s a validating moment.” Proudman added, “It’s no longer a question of does this asset class continue to exist — I think that’s a really meaningful mark in the history of the broader digital-asset class.”
This mainstream acceptance of Bitcoin might also lead to the cryptocurrency’s price going further up in the future. According to CNBCTV18, a valuation pegs Bitcoin at $200,000 in the near future. Another valuation method called the stock-to-flow model (S2F) says that Bitcoin could touch the $100,000 mark by December 2021. Despite China’s crackdown on Bitcoin mining, a series of positive news, including the acceptance of Bitcoin as a legal tender by El Salvador, has boosted prices.
At the end of the day, Bitcoin might touch $200,000 in the future, or it might go down to $2000 as well. We can’t exactly predict the future, but what we can do is make sensible investments. If you have the funds to buy any cryptocurrency, you should also understand that your gains might be wiped out overnight. Before investing in any cryptocurrency, you should not be blinded by the profits alone, and it is important to consider all kinds of possibilities.
However, we can say one thing for sure — Cryptocurrencies are no longer perceived as something that is dangerous or illegal; it has been accepted by several major investment banks, and institutional investors are pouring millions into it. So, are you going to hop into the Bitcoin ETF trend or are you going to see how the fund performs in the next couple of weeks, and then make a decision? You can share it in the comments.