Financial analysts acknowledge the growing interest in alternative financial instruments and their potential due to investor distrust in the monetary policy of national central banks.
The crypto boom in 2020 serves as a warning to national central banks that have re-launched quantitative easing programs due to the coronavirus pandemic and slowing economic growth. This opinion was expressed by Ruchir Sharma, chief global strategist at Morgan Stanley Investment Management. He notes the increased competition that the current financial system faces from bitcoins and other cryptocurrencies.
The fund manager acknowledged the progress made by digital currencies in recent years. According to him, bitcoin has become a serious competitor to the American dollar and is able to end the dominance of the American currency in the global financial market. Sharma also noted that the millennial generation is likely to continue looking for alternatives to traditional financial instruments, which will spur the development of digital currencies.
“Bitcoin has made significant progress in recent years to replace the US Dollar as a medium of exchange. People use to keep BTC only for investment purposes, but that perception is changing now as smaller businesses have started accepting bitcoin for payments worldwide, the adoption has increased in countries where local currencies are unstable,” Sharma explained.
The capitalization of bitcoin in the coming years will surpass that of gold, strategists at JPMorgan Chase predict. This will be associated with the flow of institutional investment from precious metal to digital currency. Since October 2020, investments in the Grayscale Bitcoin Trust are up $ 2 billion, while gold-backed ETFs have lost $7 billion. Grayscale also announced that it manages over $ 12 billion in digital assets, with approximately $10.4 billion being in bitcoin.
“The adoption of bitcoin by institutional investors has only begun, while for gold its adoption by institutional investors is very advanced,” wrote the JPMorgan strategists.
“Gold has long been a major strategic asset in institutional placements, typically used to hedge portfolios across the board. With the US economy seriously undermined by the Covid-19 crisis, and about 22% of US dollar emissions have been printed over the past year, assets such as gold and more importantly bitcoin have skyrocketed in value,” Lior Messica, founder and managing partner of Eden Block, said to Decrypt.
At the same time, in the near future, bitcoin may sink in price due to a sale from miners. According to analyst firm CryptoQuant, the miner position index (MPI) has reached a three-year high, which suggests that miners are massively selling mined coins on OTC platforms and exchanges. A sale by miners may indicate that miners believe that bitcoin has already reached a local maximum. They strive to sell the mined coins at the maximum in order to lock in profits, cover operating expenses by paying rent for premises, electricity and equipment maintenance. After the May halving, when the reward to miners for the mined block was cut in half, many mining companies chose to hold on to the coins and wait for a better bitcoin rate to compensate for the decrease in revenues due to the halving.