Anyone who follows the markets couldn’t have failed to note the massive growth in the value of Bitcoin, alongside many other crypto-currencies, in the past year. At the beginning of May 2020, Bitcoin was trading at around $9 000, but at the beginning of 2021, the price took off, peaking at over $63 000 in mid-April.
Those already invested in Bitcoin have seen their holdings increase in value to every traditional currency, while those on the outside have been left wondering if it’s too late to take advantage of the opportunity. Others have found lower risk methods such as arbitrage to get into the world of crypto.
Jonathan Ovadia, Ovex CEO, comments that while he doesn’t expect to see the same percentage growth in the short to medium term, he fully expects the rally to continue.
“While no one can predict what is going to happen and the market is volatile by its very nature, I wouldn’t be surprised to see the dollar price of Bitcoin growing to more than $100 000 over the next year.”
The Tesla effect
He explains that the biggest driver of this latest growth has been the entrance of large, institutional players into the market. “We’ve seen companies like Tesla both buying Bitcoin and endorsing the currency. This has had the effect of increasing individual investors’ confidence in the future of Bitcoin, while simultaneously pushing up the value of Bitcoin through increased demand.
“Companies like Tesla are buying Bitcoin because they need to find ways to store their cash reserves, preferably in instruments that are less dependent on the regulations on individual countries. Once their cash reserves are held in Bitcoin, they have the flexibility to quickly move it to wherever it can make the greatest business impact, without having to wait for bureaucratic processes to run their course.”
He adds that they’re still seeing strong demand from individual South African investors for Bitcoin. “We’re seeing our client base grow by 30% each month, but the nature of these clients is also evolving. There are still many individual investors, but we’re starting to see high net worth investors using brokers to enter the market.”
This enables them to treat their Bitcoin holdings in the same way that they treat their other investments. “With the uncertainty across global markets, people are looking to protect their investments and Bitcoin has emerged as a global alternative to traditional safe harbours such as gold. The longer we remain in this period where trust in central governments is low, the greater the demand for Bitcoin is going to be.”
Risks on the way down
Ovadia comments that the risks in the Bitcoin market are lower now than they have been in the past. “One of the key risks to the continued growth in the value of Bitcoin remains government regulation, but we’ve seen more and more countries put regulations into place, choosing a light-handed approach rather than trying to control the market. This is an admission that they understand that heavy-handed regulation is not going to have the intended effect on the market.”
Another potential driver of growth in this market is institutional investors such as pension and hedge funds. “These organisations have strict compliance regulations preventing them from investing in non-regulated products,” he comments. “Should this change then I would expect a surge in demand for Bitcoin and other crypto-currencies, driving another growth spurt.”
There’s no doubt that Bitcoin has matured into more than just a curiosity and its long-term future seems relatively secure. With the more bullish analysts predicting values between $300 000 and $500 000, there would appear to still be plenty of opportunities for people looking to get into the market
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