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NEW YORK: Bitcoin investors, including major hedge funds and money managers, are betting that the virtual currency could more than fivefold to reach $ 100,000 in one year.
It’s a gamble that has attracted the attention of skeptics who believe that the volatile cryptocurrency is a speculative asset rather than a store of value like gold.
Since January, bitcoin has gained 160 percent, bolstered by strong institutional demand and shortages as payment companies like Square and Paypal buy it on behalf of customers.
Bitcoin is in sight of its all-time high of just under $ 20,000 in December 2017. It debuted in 2011 at zero and last traded at $ 18,415.
Going from $ 18,000 to $ 100,000 in a year is no exaggeration, said Brian Estes, chief investment officer at hedge fund Off the Chain Capital.
“I’ve seen bitcoin go up 10X, 20X, 30X in a year. So going up 5X is not a big deal.”
Estes predicts that bitcoin could reach between $ 100,000 and $ 288,000 by the end of 2021, based on a model that uses the stock-flow ratio that measures the scarcity of commodities like gold. That model, he said, has a 94% correlation with the price of bitcoin.
Citi technical analyst Tom Fitzpatrick said in a note last week that bitcoin could climb as high as $ 318,000 by the end of next year, citing its limited supply, ease of movement across borders and opaque ownership.
However, those numbers are a scratch for Kevin Muir, a Toronto-based independent trader.
“Any bitcoin hedge fund model is silly. You can’t model a mania,” Muir said. “Is it plausible? Sure. It’s a mania. But does anyone really have a clue? Not a chance.”
QUALITY OF SUPPLY
Bitcoin is based on so-called “mining” computers that validate blocks of transactions by competing to solve math puzzles every 10 minutes. The first to solve the puzzle and clear the transaction receives new bitcoins as a reward.
Its technology was designed to cut the reward for miners in half every four years, a move aimed at curbing inflation. In May, bitcoin went through a third “halving”, which reduced the rate at which new coins are created, restricting supply.
That halving has fueled the renewed rise of bitcoin.
Square’s Cash app and PayPal, which recently launched an encryption service to their more than 300 million users, have been acquiring all the new bitcoins, hedge fund Pantera Capital said in its letter to investors on Friday. That has led to a bitcoin shortage and fueled the rally in recent weeks.
BUY BIG FUNDS?
The so-called whale index, which counts addresses or wallets with at least 1,000 bitcoins, is at an all-time high, said Phil Bonello, director of research at digital asset manager Grayscale. Bonello said more than 2,200 addresses were linked to large bitcoin holders, up 37% from 1,600 in 2018, suggesting that institutional money has come in like a storm.
Investors such as Stanley Druckenmiller, founder of hedge fund Duquesne Capital, and Rick Rieder, director of global fixed income investments at BlackRock Inc, have recently promoted bitcoin.
However, retail investors remain mostly marginalized due to the effect of the pandemic on the economy. But with the entry of Square and PayPal, Lennard Neo, head of research at crypto index fund provider Stack Funds, expects a more intense deluge of retail demand than in 2017.
Neo forecasts that bitcoin will hit $ 60,000-$ 80,000 by the end of 2021.
Tempus Inc currency trader Juan Perez was unimpressed, even surprised, with all the lofty forecasts and said that a bet in bitcoin at $ 100,000 next year would be a bet on the collapse of the global financial system.
“Governments around the world will not allow that to happen. They will not allow fiat currencies to collapse like this,” Perez said.
(Report by Gertrude Chavez-Dreyfuss; Additional report by Ritvik Carvalho in London; Editing by Alden Bentley and Cynthia Osterman)
