Bitcoin Reaches New All-Time High and is Well-Positioned for More
The price of Bitcoin has reached an all-time high yet again, following mid-year doldrums in which the market was battered by negative sentiment including regulation in China, certain large players such as Tesla expressing doubt, and negative sentiment from the press over high electricity use. The price has remained surprisingly stable considering the drubbing the market had been absorbing, and over the past few weeks it has surprised everyone by reaching a new all-time high of $67,000 after the first-ever Bitcoin ETF made its debut on the New York Stock Exchange. Although the price has pulled back a notch as is to be expected, reaching a new ATH represents a renewed vote of confidence in digital assets following so much negativity in the preceding months.
Bitcoin ETF Launches to Rave Reviews
The Proshares Bitcoin Strategy ETF (BITO) experienced a veritable flood of interest, so much so that after only two (2) days it already owns approximately 1,900 of the 2,000 front month contracts allotted to it by the Chicago Mercantile Exchange. The fund is now pushing contracts out to November, of which it already owns 1,400. To alleviate the issue, the CME has raised its monthly allotment to 4,000 for the month of November going forward. Eric Balchunas at Bloomberg described it as one of the best possible situations to be in, stating, “The unprecedented early volume in BITO makes it like a snowball rolling downhill, as liquidity and assets begets more liquidity and assets … The new ones will have some selling points such as only holding the front month or being cheaper and that will help, but it is nearly impossible to steal volume in the short or medium-term.”
Indeed, the fund topped $1 billion in assets in only two days, which Bloomberg also noted that it is the fastest that any ETF has hit the billion-dollar mark. The one potential disadvantage of such a strong early showing is that contracts set for purchase in the future may not track as closely to the actual Bitcoin price as is desired, but it is hoped that this problem will be resolved with the early rush coming to a close and contract allotments being increased.
Two more Bitcoin ETFs are already following suit and could shake up the market as early as the first week of November. Van Eck has submitted a filing with the SEC to launch its Bitcoin Strategy ETF (XBTF) “as soon as practicable” and plans to charge only two-thirds of BITO’s management fee. Valkyrie has also filed for an XBTO Levered BTF Future ETF, which hangs in the balance as to date the SEC has only approved basic Bitcoin future funds. Ethereum ETF funds have also been submitted to the SEC, but they were not approved, likely as they were submitted prior to the Bitcoin funds being approved. With the monumental interest displayed in the Bitcoin funds, however, this will open the door for funds based on other assets in the near future.
Inflation Providing Perfect Storm for Bitcoin’s Further Growth
The price has receded somewhat after reaching its all time high, which is to be expected – some amount of selling is inevitable as profits are claimed. As of this writing, the price sits at about $59,000, which should still please any of the strong hands that bought the maddening dips that plagued the summer prices. Some testing of lower limits is likely going to occur in the next week, but considering that a few short months ago the $40,000 mark was getting tested again and again and again for an extended period, Bitcoin is clearly in a healthier place than it was in the prior quarter. If Bitcoin can claim the $60,000 mark as a key level of psychological support, it will represent yet another rung in the hand-over-hand climbing that Bitcoin has been focusing on for the past couple of years. Although the price has been above $60,000 before, it did not do so long enough to establish any kind of meaningful support. With the momentum following the ETF fund launches with more on the horizon, though, this represents another chance for the asset to make that stick.
Another factor that might play into Bitcoin price includes high inflation in the US economy, with a 5.4% increase year over year as of October reporting. A combination of high levels of economic stimulus during the COVID pandemic and persistent supply chain issues have played havoc with currency values. Supply chain issues are also expected to be around for some time, as many problems within the chain are dependent on other problems within it also getting fixed, often leading to efficiency-consuming deadlocks that require time and planning to resolve. Although the Federal Reserve indicated they are going to ease up on stimulus in the near term, other parts of the inflation crisis are also simply out of their control. This will likely send investors to havens such as Bitcoin to wait out the storm.
Bitcoin has been beating out gold as the safe haven of choice; as of early October, Bitcoin was up 87% year to date, while gold was down 7.3% over the same period. JPMorgan commented at the time that “institutional investors appear to be returning to Bitcoin, perhaps seeing it as a better inflation hedge than gold … the reemergence of inflation concerns among investors has renewed interest in the usage of Bitcoin as an inflation hedge.” Shark Tank star and businessman Kevin O’Leary also indicated that his crypto holdings had eclipsed the allocation of gold in his portfolio.
Conclusion
The impact of the latest wave of regulations has washed over the wider market with relatively little short term impact. While the longer term effects have yet to be seen, it does not appear at all that a mid-2021 market style market correction is in the cards. An evaluation of previous metrics such as price and hash rate show that the market is far larger than any one government’s actions, even that of the most populous nation on earth.
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