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Institutional Interest In Volatile Bitcoin Could Bring Record Highs In 2021

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Tezcan Gecgil
·5 min read
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Investors in Bitcoin (CCC:BTC) are looking at returns of more 150% year-to-date (YTD). In other words, $1,000 invested in the cryptocurrency back in January would now be worth over $2,500.

Smartphone with Bitcoin chart on-screen among piles of Bitcoins
Smartphone with Bitcoin chart on-screen among piles of Bitcoins

Source: Shutterstock

Bitcoin was around $7,000 in January and currently hovers around $18,400, while its market capitalization (cap) stands at about $340 billion. By comparison, the S&P 500 index, which hit an all-time high in early December, is up about 17% YTD, with its market cap over $30 trillion.

November saw risk appetites increase in broader markets as well as cryptocurrencies. Decreasing uncertainties over the Presidential election results, positive vaccine news from Pfizer (NYSE:PFE), BioNTech (NASDAQ:BNTX) and Moderna (NASDAQ:MRNA) and discussions around potential further stimulus for the economy have meant new highs for many stocks, indices as well as for cryptocurrencies.

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Bitcoin started October at around $10,400. By December 1, it came shy of $20,000, rising above $19,783 — the previous record it had seen in December 2017.

As an alternate asset class, the cryptocurrency market is still in its infancy and evolving. Given the recent price rally, BTC is likely to be volatile in the final weeks of the year as some investors may decide to ring the cash register and take profits. However, I expect BTC to offer substantial returns for long-term investors who have 2-3 year horizons. Let’s see why.

The Crypto Market Continues To Grow

The past decade has seen significant growth in financial technology (fintech), leading to significant share price increases in companies like Visa (NYSE:V), Paypal (NASDAQ:PYPL), and Square (NYSE:SQ).

The great recession of 2008-2009 contributed to advances in the digitalization of money and the birth of cryptocurrencies. As the global financial crisis hit over a decade ago, the public became doubtful of broader markets and some of the actions taken by central banks worldwide within a fiat currency-centered, interconnected global financial system.

Bitcoin’s history also goes to 2009, when the world first heard of cryptocurrencies. Now there are over 1,600 different cryptocurrencies available to investors. Yet, with its first-mover advantage, Bitcoin gets the most attention and has the highest market cap.

Investors are attracted to cryptocurrencies for many reasons. For instance, research by Linda Schilling of Ecole Polytechnique, CREST, France and Harald Uhlig of University of Chicago highlights how cryptocurrencies like Bitcoin are not “controlled by central banks or central institutions. [S]everal features distinguish Bitcoin from for instance Visa, Paypal, and cash such as censorship resistance, transparency, and speed of trading. These characteristics may be important for future research when thinking about Bitcoin speculation.”

The current pandemic has also meant increased reliance on e-commerce, contributing to the use of digital wallets and e-money. Meanwhile, growing institutional demand could indicate Bitcoin will continue to see new record highs in 2021. JPMorgan Chase (NYSE:JPM) suggests Bitcoin could potentially “replace gold to a large extent,” ready for “considerable” upside, as it competes with gold as an alternative currency.

Finally, regular InvestorPlace.com readers would likely know that in October, PayPal enabled its US-based clients to buy and sell Bitcoin and other cryptocurrencies right from their accounts.

The Bottom Line on Bitcoin

Bitcoin is a hot investment topic. Given the recent significant run-up in price, we can expect some investors in BTC to take part of their paper profits soon. A potential decline toward $16,000 or below could give potential investors a better entry point.

The Grayscale Bitcoin Trust (OTCMKTS:GBTC) could be one way to access Bitcoin. So far in the year, it is up 145%. Fidelity Investments also recently started the legal process for setting up the first Bitcoin mutual fund ever. If the current level of institutional interest could be seen as a bullish sign, BTC’s market-cap could potentially reach $1 trillion in the new decade. Millennials’ support is expected to contribute to this demand and further solidify Bitcoin’s status as both a means of payment and a store of wealth.

Those market participants who do not want to experience the daily choppiness in BTC could consider investing in shares of companies leading the fintech revolution and are among institutions showing interest in Bitcoin.

Examples of exchange-traded funds (ETFs) that would give exposure to the cryptocurrency and blockchain, the technology behind these digital assets, include the Amplify Transformational Data Sharing ETF (NYSEARCA:BLOK), the ARK Next Generation Internet ETF (NYSEARCA:ARKW), the First Trust Indxx Innovative Transaction & Process ETF (NASDAQ:LEGR), the Goldman Sachs Innovate Equity ETF (NYSEARCA:GINN), the Innovation Shares NextGen Protocol ETF (NYSEARCA:KOIN), and the Siren Nasdaq NexGen Economy ETF (NASDAQ:BLCN).

On the date of publication, Tezcan Gecgil did not have (either directly or indirectly) any positions in the securities mentioned in this article.

Tezcan Gecgil has worked in investment management for over two decades in the U.S. and U.K. In addition to formal higher education in the field, she has also completed all 3 levels of the Chartered Market Technician (CMT) examination. Her passion is for options trading based on technical analysis of fundamentally strong companies. She especially enjoys setting up weekly covered calls for income generation.

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