Central bank intervention has helped to prevent a second collapse for Bitcoin
Greater institutional participation in cryptocurrencies has also ensured a “floor” for Bitcoin
If history was a proper teacher, Bitcoin’s price ought to have collapsed by now.
Around this time just three years ago, an unprecedented rise in Bitcoin to near US$20,000 precipitated a collapse that saw the bellwether cryptocurrency languish in what many referred to as the “Crypto Winter.”
But the spring thaw for cryptocurrencies appears, for now at least, to be durable, thanks to a flood of central bank stimulus and growing interest from both retail and institutional investors.
Bitcoin turned into the new month just a touch over US$36,000, but still well below it’s all-time-high above US$41,000 achieved last month.
So far, Bitcoin has managed to avoid a repeat of the brutal crash in 2017 and some investors are putting that down to a deluge of central bank stimulus, which has inflated the price of assets globally and triggered a frantic hunt for returns.
Professional investors are also beginning to play a more active role in the cryptocurrency markets as liquidity has increased.
Some skeptics however suggest that Bitcoin continues to be frothy and point to the recent volatility seen in the stock prices of companies like GameStop and AMC Entertainment as well as last week’s surge for silver as evidence of retail-led volatility distorting normal market movements.
The moves in those assets were driven primarily by retail investors who are now armed with increasingly sophisticated trading tools and have become a captive (if fickle) audience that wields substantial sway.
And those retail investors may just have one more way to bet on cryptocurrencies outside of buying them through apps like Robinhood.
San Francisco-based Coinbase, one of the largest and earliest U.S.-regulated cryptocurrency exchanges is preparing for a direct listing that would give investors direct exposure to the lucrative cryptocurrency services industry.
Coinbase’s direct listing comes as investors chase proxies for investing in cryptocurrencies without needing to hold them outright, including Grayscale Bitcoin Investment Trust, a favored investment channel for many traditional investors dipping their toes into the Bitcoin pool.
And business software firm MicroStrategy (+3.29%) said last year that it was raising a US$400 million bond to purchase more Bitcoin – the company made headlines earlier last year by putting some US$250 million of its balance sheet in Bitcoin, the value of which is thought to have more than doubled.
Late last month, analysts from Manulife (+1.22%), a Canadian insurance company said that the expansion in central bank balance sheets and rising public debt would push investors further into alternative asset classes, which could turn cryptocurrencies into “a solution to investor fears that ongoing extraordinary policy support could lead to resource misallocation.”
In other words, if Bitcoin is booming, blame the central banks.
Novum Digital Asset Alpha is a digital asset quantitative trading firm.
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