Weekly Brief: Could Bitcoin Really Hit $100,000?

Weekly Brief: Could Bitcoin Really Hit $100,000?

over 2 years ago3 mins

The US’s first bitcoin exchange-traded fund (ETF) hit the market last week, and now investor attention is once again turning to just how high the OG cryptocurrency could go.

🕰 Recap

  • Bitcoin’s price tumbled earlier this year in a worrying sign for technical traders
  • In August, cryptocurrency exchange Coinbase warned that its revenue growth would slow down as crypto prices stabilized
  • The next month, China announced a ban on all cryptocurrencies – again
  • And this month, bitcoin’s price shot higher as investors anticipated the approval of a bitcoin futures ETF

✍️ Connecting The Dots

There have never been any bitcoin ETFs to speak of in the US, but that’s not for lack of trying: they’ve just always been rejected by the country’s financial regulator. But one finally hit the market last week, thanks to a couple of key differentiators from its predecessors. First off, it’s a bitcoin futures ETF – i.e. it’s based on derivatives contracts that speculate on the crypto’s price at a later date, rather than bitcoin itself. And secondly, it’s adhering to mutual fund rules that the US regulator believes will give investors “significant protections” that previous hopefuls lacked.

There are some major differences between buying the bitcoin ETF – “BITO” – and bitcoin itself. BITO, for one thing, is more complex under the hood: it contains lots of individual futures contracts that each have to be “rolled” on expiration, which comes with costs. Between that and the fees that the investment manager charges for deciding which contracts to buy, when to roll, and how to comply with all the different rules and regulations, BITO’s expense ratio totals a much higher-than-normal 0.95%. Depending on your goals, then, it might be simpler just to buy bitcoin directly.

Still, it’s got bitcoin investors excited. The price of the OG cryptocurrency rose to a fresh record high last week and – with bitcoin now up around 120% this year – some bulls now think a $100,000 price is on the horizon. Others – like the team at Fundstrat Global Advisors – are setting their sights even higher: they reckon it could hit as high as $168,000. But buyer beware: there’s historically been a big bitcoin fall after a big bitcoin rise.

🥡 Takeaways

1. This could be a new dawn for bitcoin.

A new bitcoin ETF seems like it’s universally positive for bitcoin trading platforms and mining firms, given the boost it’ll give crypto access and investor interest alike. Certain investors and institutions have, after all, been uncomfortable with the concurrent risks of buying a volatile asset and relying on crypto-specialist platforms. But regulatory sign-off could be the assurance they need to take the plunge and send demand for bitcoin even higher. That revelation wasn’t lost on investors: both crypto exchange Coinbase and bitcoin miner Bit Digital saw their share prices jump ahead of the ETF’s approval.

2. Bitcoin still has significant challenges.

Despite the recent euphoria, there are still things that may give would-be bitcoin investors pause. Bitcoin still doesn’t meet the key features of a currency: it’s neither a unit of account, a viable means of payment, or a stable store of value. And since bitcoin’s price drop earlier this year coincided with the highest US inflation in over a decade, it doesn’t seem to be the inflation hedge it’s made out to be either. The cryptocurrency also doesn’t generate cash flows or have any uses that can be used to determine its fundamental value, and, importantly, it’s not truly decentralized: around 85% of all bitcoin is held in just 0.5% of wallets.

🎯 Also On Our Radar

The CEO of the Institute of International Finance warned last week that the current focus on environmental, social, and governance (ESG) investing could create an unsustainable bubble, and that cryptocurrencies were already in one. It wasn’t an indictment of crypto or ESG investing, mind you – just an observation of the likely outcome when there’s “too much money chasing too few deals”.

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