R1m bitcoin could soon be on the horizon

Bitcoin came within a whisker of R1 million on local exchanges on Tuesday, hitting a new all-time high.

Six years ago bitcoin was trading at R2,450 on local exchanges. That’s a nearly 400-fold increase since 2015, though it has been far from a smooth ride, with 80% to 90% price corrections along the way.

On overseas exchanges the coin breached $64 000 for the first time this week, with some analysts calling $80 000 as the next upside target.

Bitcoin has more than doubled in price since the start of 2021, fuelled by large-scale institutional adoption from companies like Tesla, Square and MicroStrategy, with PayPal recently announcing its 375 million customers can now make purchases with cryptos such as bitcoin and the Ethereum blockchain currency, ether.

The latest surge in bitcoin’s price has pushed up the stock prices of companies with exposure to the world’s biggest crypto.

The stock prices of Tesla, MicroStrategy, Square and PayPal have all been riding the bitcoin wave this last week.

“R1 million per bitcoin may seem like a large number, but it’s important to look at the total value of bitcoin in its entirety,” says Farzam Ehsani, CEO and founder of crypto exchange VALR. “The entire market cap of bitcoin is just over $1 trillion, which is an order of magnitude lower than gold.

“If the thesis of bitcoin being ‘digital gold’ materialises, then it still has tremendous potential to increase in value over the long term, despite short-term volatility.”

Listing

Another factor driving the bitcoin price is the listing of one of the world’s largest crypto exchanges, Coinbase, on the Nasdaq on Wednesday, at a reference price of $250 per share.

“Arguably, the listing is driving the price of bitcoin, as the Coinbase valuation has shown many institutional investors that there is significant value in crypto assets, resulting in increased demand,” says Josh Miltz, co-founder of crypto investment firm BitFund.

“The Coinbase listing has also provided further legitimacy to the crypto market, resulting in the increase in demand from both institutions and consumers.”

Miltz adds that a R1 million bitcoin is not that surprising, as it has been expected for years.

“At BitFund, we have been following the data and, arguably, the most important trend of this bull cycle is the rate at which bitcoins are being pulled off exchanges. There are approximately 1 500 bitcoins being pulled off exchanges every day, whereas there are only approximately 900 bitcoins being mined every day, after the supply halving in May 2020 (which is an event that happens every four years).

“The data shows that not only have miners stopped selling their coins, but they have begun accumulating more bitcoins for themselves. Based on the basic supply and demand dynamics, this has resulted in higher prices, which we should expect to continue.”

Inflation hedge?

With the listing of Coinbase on the Nasdaq and accelerating institutional adoption, Miltz says investors are starting to see bitcoin as a hedge against inflation, particularly after US President Joe Biden administration’s recently signed off on a $1.9 trillion stimulus package.

In a recent online survey by Forbes magazine, some 500 corporate attendees said they expected their companies to buy bitcoin this year.

“We went from zero adoption in the world to 26% enthusiasm in less than 12 months,” MicroStrategy CEO Michael Saylor told Forbes.

Where to from here?

Dan Held, growth lead at crypto exchange Kraken, told Moneyweb this week that bitcoin is probably in a “super-cycle” which still has years to run. He foresees a price eight to 10 times higher than where it is now. It won’t be a smooth ride, if history is any guide.

After the December 2017 all-time high of $20 000, the bitcoin price crashed 84% over the following 16 months, before recovering to its current levels.

“While the data suggests that we are in a bull market and there is still room for a R1 million-plus bitcoin, the trends can change and the volatility should be monitored by investors,” says Miltz.

“It is easy to get caught up and fear missing out in a bull market, so all allocations to cryptocurrencies should be made with risk capital, and follow the principles of diversification to minimise risk.”

Commenting on bitcoin’s push towards R1 million, Revix CEO and founder Sean Sanders comments: “This is just the start. With bitcoin and other cryptocurrencies, the more valuable they become, the less risky they become. The reason is you create a wider investor base, with bigger institutional backing.

“You also have new applications being developed in the decentralised finance space, such as non-fungible tokens (NFTs), gaming, online gambling and all sorts of other applications that are being developed around the blockchain.”

Bitcoin price in rands

Brought to you by Moneyweb