Key point overview
- Bitcoin prices more than doubled in 2019, far exceeding the 31% return of US technology stocks by Goldman Sachs, which is the best-performing asset class so far this year.
- A high rate of return may attract the interest of large investors in traditional financial markets with low yields.
- Executives at data firm Messari said that although bitcoin prices are currently around $8,100, they are likely to rise to new highs in the rest of the year, up from $12,902 hit in June.
So far in 2019, it has been difficult for investors to find asset classes that perform better than Bitcoin.
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gold? It has risen 17% since December 31. stock? As of September 30, the S&P 500 has a return of 21%. Bond? The 10-year US Treasury yield is only 1.6%, close to historical lows.
What about Bitcoin? According to Messari's data, the price of the leading cryptocurrency leader in the third quarter was about $8,308, up 114% for the year. Investors who bought on the last day of 2018 have more than doubled their funds.
On Wall Street, the main criticism of Bitcoin is that it was a new thing invented a decade ago by a computer programmer (or a few programmers, no one really knows), without real intrinsic value. As they say, it's just a fictional thing, and the price of its violent fluctuations depends on how much the next buyer is willing to pay to pick up.
But with the global economic slowdown, the trillions of dollars in government bond yields in Europe and Japan are negative. It is conceivable that the price increase of Bitcoin this year may attract a new wave of investors who would not even be eye-catching before. Take a look at Bitcoin.
There are already signs that they are doing this. Pantera Capital, one of the first cryptocurrency funds to be established, recently arranged an event for existing investors in San Francisco. The guest was a cryptographer and digital currency pioneer Nick Szabo. Panbro partner Paul Brodsky said that after the news came out, some investors who had never been exposed to such assets contacted the company and asked for an invitation. Brodsky said:
“It’s full of drama, full of energy and pressure. We’re attracting interest from all types of important institutional investors.”
Fear of missing (FOMO)
Executives at London-based encryption investment firm KR1 said that bitcoin's price hike this year could attract large institutional investors such as pension funds and endowments, and they are working hard to meet their return targets to meet retirees and other beneficiaries. The obligation to pay profits. The company's director, Keld van Schreven, said:
“Bitcoin has been around for a long time, and people are now more familiar with it.”
He then added:
"Yes, bitcoin is very volatile, but people may know other people who hold bitcoin, so they say to themselves, 'Look, they did quite well this year.' This is the expression of fear of missing."
In a report released this week, analysts at Wall Street's Goldman Sachs ranked IT stocks as the best performer so far this year, with a return of 31%, and noted that its performance is better than bonds and gold. Other asset classes.
Bitcoin is not mentioned in the report, which reminds people that the encryption market is still in its infancy; large companies on Wall Street have not yet conducted large-scale digital asset transactions. But so far this year, bitcoin prices have risen almost four times that of the hottest tech stocks.
Many investors noticed Bitcoin for the first time in 2017, and its bitcoin price has risen more than 20 times in the year and hit a record high of $20089 in December of that year. According to Messari, a New York-based encryption market data provider, Bitcoin prices have now fallen 59% from their peaks after a poor performance in 2018.
However, at current prices, this digital currency is still more than 10 times higher than the level of the bull market in 2017.
Value storage means
One of Bitcoin's long-standing arguments is that, unlike stocks and bonds whose prices are often highly susceptible to central bank and government decisions, the cryptocurrency is not controlled by sovereign governments. Instead, it is governed by fixed rules that are hard-coded to the underlying network, so it is difficult to tamper with.
Under these rules, the total supply of Bitcoin is limited to 21 million, so it is not as prone to inflation as developed market currencies such as the US dollar, the euro and the yen. Central banks in these money markets tend to use more banknotes to stimulate the economies of each country.
In fact, US President Donald Trump repeatedly called on the Federal Reserve to cut interest rates sharply during the re-election in 2020, while accusing the Chinese government of artificially lowering the RMB exchange rate to gain an unfair advantage in international trade.
Supporters of many cryptocurrencies describe Bitcoin as Gold 2.0. Gold has been seen as a reliable means of value storage since ancient times, and Bitcoin is essentially a newer, more technologically advanced and more portable precious metal. Qiao Wang, Messari's product director in New York, said:
"Bitcoin is slowly turning into digital gold, but it is not yet."
However, for now, even professionals in the field admit that bitcoin is highly speculative; many traders are only betting that the next round of price volatility will be rising or falling.
“At the end of the day, Bitcoin remains a highly speculative asset,” said David Martin, chief investment officer at Blockforce Capital, a cryptocurrency investment firm based in San Diego. He said that because Bitcoin has fluctuated drastically in recent years, "it is not a safe haven."
Martin pointed out that the price of Bitcoin has been in a downward trend in recent months, falling from the high of $12,900 during the year hit on June 26, partly because the industry's enthusiasm for the short-term prospects of institutional funds pouring into the market has weakened. .
The Intercontinental Exchange, the parent company of the New York Stock Exchange, launched a new bitcoin futures contract last month that was tailored specifically for institutional investors. However, the total volume of the new contract this week was only $5 million.
In contrast, in the third quarter of this year, US$26.5 billion in corporate bonds changed hands every day in the US market. Obviously, financial institutions have not yet invested heavily in Bitcoin.
The market is healthy and growing
However, some internal indicators of Bitcoin show that this is a healthy and growing market.
For example, the hash rate for measuring the bitcoin power indicator has risen from about 40EH/sec at the beginning of the year (1EH=10 to the 18th power H) to 90EH/sec.
Some industry executives believe that bitcoin prices may be gaining momentum. The escalation of Trump's trade war with China will likely become one of the catalysts.
Wang Qiao said that he conducted an informal survey among his colleagues. The average forecast for bitcoin prices at the end of 2019 was $13,252.
“This number is entirely within the possible range,” he said. Of course, the risks are everywhere. For example, there may be a regulatory attack. “In this case, the price may continue to go down.”