Is Bitcoin really going to “conquer” people with its rising value?

Source: Securities Times e-News

During the Spring Festival, the price of Bitcoin soared. On February 16, it broke through the $50,000 mark and reached $52,000. Since entering the upward channel in November last year, the rise of Bitcoin has been amazing, with an increase of nearly 80% this year alone; compared with the same period last year, the increase is more than 400%.

The "violent" rise that lasted for several months has made it impossible for the market to ignore this asset that has long been out of the sight of mainstream institutions. From time to time, news of a well-known Wall Street institution announcing that it will purchase Bitcoin has been reported, proving that this alternative asset that was once "ignored" has now become a popular commodity. Supporters say that Bitcoin will "convince" those who do not believe in it.

Is this really the case? Mainstream analysis believes that this round of Bitcoin's rise is different from the previous ones, mainly due to the difference in investor structure. This round of bull market is mainly driven by institutional investors, with less participation from retail investors, especially after breaking through the previous high, the retail investors who were trapped in the early stage were "liberated" and new entrants rarely dared to follow suit. The institutional investors here mainly refer to Grayscale, and the main buyers of its products are major Wall Street institutions, including hedge funds, mutual funds, family offices, etc. Grayscale's compliant trust products provide restricted institutional investors with channels to buy Bitcoin. After some listed companies announced that they had bought Bitcoin, their stock prices also rose in the short term, further strengthening the public's impression that Bitcoin makes people rich.

The root cause of the rise is that major central banks around the world have been "flooding" the market with money, and people are worried about asset depreciation. As a digital asset, Bitcoin is used by institutions as part of their asset allocation to resist the bubble of traditional assets. Compared with traditional assets such as stocks, the market value of Bitcoin is not high. Calculated at a price of $50,000 per coin, the total market value of Bitcoin is equivalent to that of Tesla and one-third of that of Apple. For institutions with sufficient ammunition, large asset allocations can easily drive up prices.

Judging from the allocation of most institutions, alternative assets account for a relatively small proportion, and Bitcoin as a part of it accounts for an even smaller proportion. Some smaller asset management institutions purchase them at the request of their clients and implement total quantity control. Institutional allocation of Bitcoin may only be a tentative purchase, and there is no consensus on its future.

For ordinary investors, although it is difficult to say that the price of Bitcoin has peaked in the short term, they should still remain sober. Bitcoin is a high-risk asset, not a safe-haven asset. The current market expectations for inflation have begun to diverge, and as vaccines are launched in various countries, economic activities will further recover. Under the dual pressure of expectations for economic recovery and high inflation, the market speculates that major central banks around the world will gradually withdraw from the existing loose policies. When monetary policy will gradually shift from loose to moderately tight, institutional investors are likely to sell Bitcoin, and we need to be highly vigilant about this.