Analysis

Bitcoin Passes $51K: Where Do We Go From Here?

Is a Bitcoin price over $50,000 the 'new normal'?

$5,000, $10,000, $25,000, all of these numbers are fairly arbitrary, and yet, their roundness is somehow more significant than, say, $5,789, or $11,890, or $26,137.

Therefore, when Bitcoin passed $50K yesterday, it was a big deal, even though, as Paolo Ardoino pointed out, the move was not necessarily unexpected.

Ardoino, who serves as the Chief Technical Officer of cryptocurrency exchange, Bitfinex, said in a statement shared with Finance Magnates: “Bitcoin has surged passed the US$50,000 mark amid widespread optimism that the world’s biggest cryptocurrency will continue to rise,” he said.

Paolo Ardoino of Bitfinex
Bitfinex CTO Paolo Ardoino

“As stock markets in the U.S. and China were closed for public holidays all eyes have been on the king of crypto. Bitcoin’s ascent into mainstream consciousness shows no signs of abating as its properties as digital gold and a base layer in an emerging financial system garner ever-closer interest and scrutiny.”

Bitcoin’s Journey past $50k

It took several ‘tries’ over the past week before there was enough momentum to get Bitcoin passed the $50K mark. BTC first started to show bullish movement toward $50K on Sunday, when data from CoinMarketCap showed that the price hit as high as $49,450. However, by Monday, the price fell to $46,860.

By the end of the day, the price had recovered to $48,670. It fell again to $47,750 in the wee hours of Tuesday morning; by mid-day (GMT), BTC was up to $49,570. Bitcoin would dip one more time to $48,190 before making a parabolic move passed $50,000.

The move was quickly followed by another dip to roughly $48,350. However, as of press time, the price had been steadily climbing for a number of hours and was sitting at approximately $51,270.

However, the rally may be showing signs of levelling off. As of 10:20 GMT on Wednesday, February 17th, the price of Bitcoin was slightly lower on Coinbase ($51,304.50) than it was on Binance ($51,322.49 ). This could be an early indication that retail investors are selling some of their BTC holdings in anticipation of a larger, institutional sell-off.

“$50,000 #Bitcoin Is the New Normal.”

Even if Bitcoin does sink below $50,000 again, many analysts believe that it will not be for long. Blockstream CSO, Samson Mow tweeted on Wednesday that: “$50,000 #Bitcoin is the new normal.”

Still, some analysts predict that a severe correction could be in the cards for Bitcoin somewhere down the line. Renowned trader Peter Brandt wrote on Twitter that: “Bitcoin is undergoing its third parabolic advance in the past decade. A parabolic advance on an arithmetic scale is extremely rare – three on a log scale is historic.”

In response, Fabio R. Cerqueira, an Associate Professor at UFF, asked Brandt that: “according to your projections, what would be your estimate of the bottom when the current parabolic advance is over and price falls (a start of another parabolic movement)?”

“80% corrections are most common when parabolic advances are violated,” he replied.

“We Are Hitting the Inflexion Point of Digital Asset Adoption.”

Still, as the factors that are driving Bitcoin forward continue to evolve and change, Bitcoin’s movements may continue to defy expectations laid by previous market patterns.

John Wu, President of Ava Labs, said in a statement shared with Finance Magnates that: “what excites me about this BTC all-time high is that we are now seeing validation of this space from the broad adoption from institutional investors and corporations.”

Indeed, $50K did not happen overnight for Bitcoin. Many analysts point to several events last week as being the final catalysts toward Bitcoin at $50K: namely, a $1.5 billion investment from Tesla, as well as the announcement that Mastercard would begin supporting cryptocurrency transactions in 2021.

John Wu, President at AVA Labs.

Additionally, since Tesla announced its $1.5 billion investment, there have been a number of whispers that other major companies, including Apple, Microsoft and others may follow in its footsteps.

As such, the movement of Tesla into Bitcoin could represent a major milestone in Bitcoin’s journey towards true widespread adoption and price stability. Wu explained that: “for any asset class to be fully adopted, a variety of buyers should exist: retail, institutional, corporate and financial actors.”

“We are now seeing a great mix of investors, and these are great signs that we are hitting the inflexion point of digital asset adoption,” he added.

The investment of major institutions in Bitcoin has other implications for Bitcoin beyond price. Specifically, investments like Tesla’s represent the fact that “infrastructural support and channels to use and acquire digital assets are becoming widely available.”

Improvements in Bitcoin Infrastructure Have Come a Long Way, but There Is Still More to Go

In other words, the technology and regulatory operations to support these kinds of major investments are finally here. “We are seeing cryptocurrency companies going public, institutions like BNY Mellon offering custodial services, to Mastercard providing crypto payment rails,” Wu said. “Consumer demand is driving these developments, and we are on our way to a point where digital assets will be used in everyday life.”

Additionally, yesterday brought news that the first-ever physically settled Bitcoin based exchange-traded fund (ETF) was greenlighted by Canadian regulators, a move that is slated to bring in more institutional cash from around the globe.

Diogo Monica, President and Co-Founder of Anchorage, told Finance Magnates that: “providing access to cryptocurrencies through traditional fund structures as ETFs will meaningfully increase the accessibility of this asset class to consumers.”

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Diogo Monica, President and Co-Founder of Anchorage.

“This wasn’t possible three years ago when there were no platforms that solved the hard problems in cryptocurrency: custody, liquidity, regulation,” he said.

However, some in the cryptocurrency industry believe that there is still much work to be done in terms of creating the proper regulatory and technical infrastructure for Bitcoin, work that has to be done before more big institutions can hold large amounts of Bitcoin on their balance sheets.

For example, Caitlin Long, Founder and Chief Executive of AvantiBT, wrote on Twitter that: “Tesla confirmed it’s using indefinite intangible accounting,” to handle its Bitcoin, which Long described as “ugly treatment” due to “lower of cost or market+risk of impairment charge.”

“We bitcoiners must work to get bitcoin [accounting] fixed,” she wrote, adding that the lack of good accounting options for Bitcoin is “[probably] why Square only put 2% of its cash into #BTC.”

Will Other Companies Follow in Tesla’s Footsteps?

Still, in spite of the difficulties that remain for big companies investing in Bitcoin, some companies are still lining up to buy even more BTC.

Specifically, Microstrategy announced on Tuesday that it intends to sell $600 million in convertible debt to buy more bitcoin. The company famously purchased roughly 21,454 bitcoins in August of 2020 using its own reserves. The company already famously holds roughly 72,000 Bitcoins, worth nearly $3.7 billion.

Interestingly, though, the move appears to have been received with skepticism among the company’s shareholders. After the announcement went live, Microstrategy’s stock price fell by 7 percent.

And indeed, while BTC passing the $50K mark may have attracted an institutional buzz in the short-term, a number of analysts believe that most companies will need much more time before they might be ready to add Bitcoin to their balance sheets.

For example, following the Tesla investment Naresh Aggarwal of the Association of Corporate Treasurers in London told the New York Times that: “Gold is probably a more traditional form of alternative investment.” The Times also noted that few firms outside the financial sector hold gold.

“If they’re not tempted by gold, then I can’t see them being tempted by Bitcoin,” he added, likening it to “putting money on a horse race.”

What Is Bitcoin?

Speaking of horses, though, hedge fund manager Paul Tudor Jones believes that Bitcoin is “the fastest horse” in another kind of race.

In December, Jones said in a letter to investors that Bitcoin is an inflation hedge against “great monetary inflation,” comparing it to ‘gold in the 70s’.

“The best profit-maximizing strategy is to own the fastest horse,” says Jones in a letter to his investors. “If I am forced to forecast, my bet is it will be Bitcoin.”

Indeed, Wu told Finance Magnates that: “the narrative of Bitcoin becoming the digital gold is gaining traction.”

And, indeed, BTC does seem to be increasingly viewed as a store-of-value in the wake of the economic fallout that COVID-19 has brought to the global economy. Specifically, a number of analysts have pointed to the eye-popping amounts of stimulus cash that the United States and other countries around the world have continuously poured into the economy.

Wu said that if Bitcoin’s status as a “store-of-value” continues to hold, that “the growth potential is off the charts.”

“$50,000 per BTC equates to a market cap of roughly $931B, which is almost 9% of Gold at roughly $10.6T market cap,” he said. “If BTC meets Gold’s market cap, then that would be at least $500,000 per BTC.”

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