All-time high! Bitcoin soared overnight, breaking through $21,000, a 460% increase in 9 months. Who is buying it?

Editor of Every Economic Report Lu Xiangyong

At 3:00 am Beijing time today, the US Federal Reserve announced that it would maintain the target range of the federal funds rate between zero and 0.25%, in line with market expectations. During today's trading, US stocks "jumped up and down", sometimes diving quickly, and sometimes rising quickly, showing that investors were very worried. By the close of trading, the Dow fell 0.15%, the Nasdaq rose 0.5%, and the S&P 500 rose 0.18%.

Unlike U.S. stock investors, virtual currency investors are celebrating today. Before the U.S. stock market opened, Bitcoin soared instantly, rising by about $1,000 in about an hour, breaking through $20,000 for the first time in history. As of press time, Bitcoin rose 9.43% against the U.S. dollar to $21,331, a sharp increase of more than $2,000 from the intraday low.

Bitcoin price doubled in the past three months

2020 is about to end. In the global capital market, the most profitable is undoubtedly Bitcoin, the "ancestor" of encrypted digital currencies. Since the beginning of this year, Bitcoin has accumulated a growth of about 200%. If the price of Bitcoin is calculated from the lowest point of $3,783 per coin in March at the beginning of the year to $21,000 today, the growth is about 460%.

Bitcoin has been rising particularly rapidly recently, doubling in the last three months.

Due to its similar settings to gold, such as total scarcity (Bitcoin has a total upper limit of 21 million coins) and stable production (Bitcoin needs to be produced through "mining"), Bitcoin is also regarded as "digital gold" by its followers and is regarded as a "safe-haven asset."

On the news front, British media recently reported that British investment institution Ruffer Investment Management will transfer 2.5% of its managed assets to Bitcoin to diversify investments in inflation-resistant bonds such as gold.

Ruffer Investment Management was founded in 1994 and, according to public market data, currently manages approximately $20 billion in assets for 6,600 clients.

In a statement, Ruffer Investment Management said that investing in Bitcoin is a small but effective insurance policy against the continued depreciation of major global currencies. Bitcoin diversifies the company's (larger) investments in gold and inflation-linked bonds and can hedge some currency and market risks.

Although this is another positive for institutional investors to enter the Bitcoin market, the company’s announcement has sparked debate in the market. Some media reported that the “2.5% of the asset portfolio” stated by Ruffer Investment Fund in the announcement refers to a multi-strategy fund under its umbrella, not the entire asset portfolio, but a sub-fund with a total value of US$600 million.

But as doubts grew, a spokesperson for Ruffer Investment Fund responded to media interviews, saying that the company's announcement referred to "2.5%" of the 20.3 billion pounds (about 27.3 billion U.S. dollars) fund. The current value of Bitcoin held is about 550 million pounds (about 745 million U.S. dollars), and this allocation was completed at the end of November.

Image source: Photo Network

In addition, JPMorgan strategists led by Nikolaos Panigirtzoglou pointed out in a report last week that the trend of investing in Bitcoin is gradually shifting from family offices and wealthy investors to insurance companies and pension funds. Although these insurance companies and pension funds are unlikely to have excessive allocations to Bitcoin, even a small amount of funds entering the market may have a significant impact.

Earlier, the American insurance company Massachusetts Mutual Life Insurance announced that its investment fund would purchase $100 million in Bitcoin, becoming the latest mainstream company to get involved in cryptocurrency assets.

Analysts said that MassMutual's move would be a milestone for institutional investors to invest in Bitcoin. "As other insurance companies and pension funds follow suit, it can be expected that the potential demand for Bitcoin will rise in the coming years."

Analysts predict that if pension funds and insurance companies in the United States, the eurozone, the United Kingdom and Japan allocated 1% of their assets to Bitcoin, demand for Bitcoin would increase by $600 billion.

This month, Ray Dalio, founder of the world's largest hedge fund Bridgewater Associates, said that over the past decade, Bitcoin and other digital currencies have become a gold-like asset alternative. Bitcoin has both similarities and differences with limited supply liquid wealth storage methods such as gold, so it can be used as a diversification investment in gold.

However, industry insiders have always reminded that no matter what direction the price of Bitcoin takes in the future, it is best for individuals not to participate in futures trading of encrypted digital currencies without the participation of large institutions.

The share prices of blockchain stocks in the U.S. stock market rose sharply today, with Canaan Inc. up 6.74%, Marathon Patent up 16.41%, and Riot Blockchai up 5.70%.

The Federal Reserve staged a year-end "finale"

At 3 a.m. Beijing time on December 17, the Federal Reserve announced its last interest rate decision of 2020.

According to Xinhua News Agency, the Federal Reserve announced that it would maintain the target range for the federal funds rate between zero and 0.25%, in line with market expectations.

Although the Fed did not directly adjust the scale of QE bond purchases today, it strengthened its goal of maintaining bond purchases. The statement said that it will continue to purchase at least $120 billion in bonds per month until "substantial progress is made in achieving maximum employment and price stability goals", while the previous deadline was "in the coming months".

Fed Chairman Powell said at a press conference after the interest rate decision that the Fed would not give exact indicators for "substantial progress" and would issue a warning before reducing bond purchases. Powell also reiterated that the Fed could expand bond purchases.

Notably, Powell also commented on the current market, arguing that current stock prices are not necessarily high given the current low interest rates.

At the same time, the Fed raised its economic growth forecast for the past three years and extended the temporary support for US dollar liquidity tools launched during the epidemic for six months. The median forecast of Fed officials is: US GDP will fall by 2.4% in 2020, and the expected decline was 3.7% in September; the expected growth rate in 2021 will rise from 4.0% to 4.2%, and the growth forecast in 2022 will rise from 3.0% to 3.2%; the expected growth rate in 2023 will fall from 2.5% to 2.4%, and the growth forecast in the longer term after 2023 will fall from 1.9% to 1.8%.

After the meeting, the Fed also announced that it would extend the validity of the FIMA Repo Facility, a mechanism for US dollar liquidity swaps and repurchase agreements for overseas central banks, until September next year. These are temporary tools launched by the Fed after the outbreak of the epidemic in March this year, and the Fed had previously extended the deadline to March next year.

Today, the US stock market "jumped up and down", showing that investors were very nervous. After the Fed's decision was announced, the three major US stock indexes rose briefly before falling back.

As of the close, the Dow Jones Industrial Average fell 0.15%, the Nasdaq rose 0.5%, setting a new closing high, and the S&P 500 rose 0.18%.

U.S. large technology stocks were mixed, with Apple down 0.05%, Amazon up 2.4%, Netflix up 0.97%, Google down 0.22%, Facebook up 0.04%, and Microsoft up 2.41%.

Anti-epidemic concept stocks fell across the board, with Moderna down 6.92%, Gilead Sciences down 0.82%, Novavax down 4.23%, BioNTech down 4.87%, and Pfizer down 2.22%.

(This article does not constitute investment advice, and you are responsible for your own risks.)

Editor | Lu Xiangyong and Wang Jiaqi

Proofreading | He Xiaotao