The cryptocurrency almost quadrupled, surpassing $20,000 for
the first time as it notched record after record. The diehards cheered it as an
inflation hedge in an era of unprecedented central bank largesse. Wall Street
veterans from Paul Tudor Jones to Stanley Druckenmiller blessed it as an
alternative asset, adding to the rally. Companies like MicroStrategy and Square
moved cash reserves into crypto in search of better returns than near-zero
interest rates deliver.
While none of those reasons for buying Bitcoin comport with
its origins as an alternative to fiat currencies, they do point to a growing
acceptance of crypto as an asset class of its own. And that has the zealot-like
community taking yet another victory lap in their quest for legitimacy.
“What's happening now, and it's happening faster than anyone
could ever imagine, is that Bitcoin is moving from a fringe esoteric asset to
the mainstream,” said Matt Hougan, chief investment officer of Bitwise Asset
Management. “If it's going mainstream, there is just so much money on the
sidelines that is going to have to come in and establish a position that it
leaves me very bullish for 2021.”
But with Bitcoin capturing greater attention, it could also
garner further scrutiny from regulators, says Guy Hirsch, managing director for
the US at online-trading platform eToro. “Despite this meteoric rise, there are
some storm clouds on the horizon,” he said, including the fallout from several
last-minute actions by the outgoing Trump administration, among others.
Devotees say that in some ways, the pandemic-ravaged year
proved the perfect environment for the digital coin. Warnings of rampant
money-printing by global central banks, some of which started to reveal their
own interests in digital assets, sparked fears of eventual inflation, while
interest rates dipped to rock-bottom lows. That's thrust some investors to
chase returns and hedge with cryptocurrencies, pushing its price past $28,000
from around $7,200 at the start of
January.
Predicting where it will go is a fraught exercise. Many left
the coin for dead after its 2017 rally resulted in a crash the following year,
a stretch of time sometimes referred to as the “crypto winter.”
But it's surged more than 300 percent in 2020 and many
investors say it could continue to gain next year. A Deutsche Bank survey found
a majority see it ending 2021 higher, with 41 percent of participants
projecting a target between $20,000 -$49,999 and 12 percent seeing it crossing
above $100,000, according to Jim Reid, a strategist at the firm.
What else is on the radar? To Meltem Demirors, chief
strategy officer at digital-asset manager CoinShares, there are some concerns
about what the incoming Joe Biden administration might mean for the crypto
space.
“Generally, I think we have had challenges with the Dems, they
prefer more regulation, more oversight,” Demirors said. “I am a bit worried
about the direction things are trending,” especially around antitrust lawsuits
and an erosion in internet privacy. Still, the industry has some allies, said
Demirors, including North Carolina's Patrick McHenry and Ohio's Warren
Davidson, who she says have been advocates for the preservation of consumer
financial privacy.
Going forward, many strategists and investors say, the
industry could see more scrutiny and tighter regulation with Biden in the White
House.
A lot will, of course, depend on who fills key positions
within the administration. Janet Yellen, who's been nominated to serve as
Treasury secretary in Biden's administration, has in recent years cautioned
investors over Bitcoin, saying it was a “highly speculative asset” and “not a
stable store of value.” A representative didn't immediately return a request
seeking comment.
Meanwhile, Bloomberg News reported that Gary Gensler could
be nominated to replace Jay Clayton at the US Securities and Exchange
Commission. Clayton's exit from the regulator is welcome news for crypto fans
who saw him take a hard line over the years, suing to halt initial coin
offerings, rejecting applications for Bitcoin exchange-traded funds and
launching a last-minute lawsuit against Ripple Labs. Gensler, who served as a
Commodity Futures Trading Commission chairman during the Obama administration,
is a senior advisor to the MIT Media Lab Digital Currency Initiative and
teaches about blockchain technology and digital currencies.
According to eToro's Hirsch, there is uncertainty around how
the Biden administration will approach cryptocurrencies, but the appointments
are notable “because Yellen is famously anti-crypto and Gensler is known for
being pro-crypto.”
“Without knowing how authorities will seek to more robustly regulate crypto in the coming years, it is hard for the markets to continue growing at the same rate they are now, especially if, as some fear, regulations aimed at curbing innovation rather than fostering it are enacted,” said Hirsch. “Once again, clarity is the name of the game.”
© 2020 Bloomberg L.P
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