Bitcoin Mania or is there Method to the Madness?

  • Bitcoin soars to new all-time-high above US$52,000 
  • Volatility still lower than 2017, with macro factors and futures activity suggesting that the rally remains sustainable 
To understand the tale of Bitcoin one first needs to understand where we are in the market cycle right now – and that is in the midst of madness, the only logical thing to do is make money.
Whether it’s ball bearings or Bitcoin, trying to assess the markets with a traditional lens right now would only leave an investor blind to the myriad opportunities that only a market distorted by excess liquidity could provide.
Bitcoin surged yesterday to US$52,000 for the first time ever, with little signs of letting up in what some are suggesting is emblematic of speculative froth in markets flooded with stimulus.
The cryptocurrency faithful counter such allegations of speculation with their own narrative – that Tesla’s purchase of US$1.5 billion worth of Bitcoin, as well as MicroStrategy (-1.38%) boosting its convertible debt sale to US$900 million to buy Bitcoin and cutting the coupon to 0% making it essentially a straight bet on Bitcoin, is fueling the most recent rally.
And while there are as many reasons to explain Bitcoin’s rally as there are Bitcoin investors, it is entirely possible that MicroStrategy and Tesla’s move into the cryptocurrency, ostensibly as a hedge against inflation, may spur other firms to do the same.
A recently concluded Gartner Survey of finance executives and CFOs revealed that as many as 5% are looking to put Bitcoin on their books before the year is up.
And data compiled by Bloomberg suggests that traders don’t see an end to the Bitcoin rally, with spreads continuing to widen between active contracts and March futures.
That bullishness on Bitcoin has seen some spillover into the stock market as well, with shares of Asian cryptocurrency-adjacent firms such as Monex Group (+2.49%) soaring by 11% to hit a 13-year high, while Hong Kong’s BC Technology Group (-0.95%) closed at a new record.
But the volatility in Bitcoin continues to remain high – with its 60-day realized volatility the highest since May of last year, though comparisons with 2017, show that volatility is still below the peak of the last boom and bust in Bitcoin.
Perhaps it’s institutional investors or perhaps it is retail investors, with Bitcoin, there are as many valid reasons as you can possibly make up. 

Novum Digital Asset Alpha is a digital asset quantitative trading firm.

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