Bitcoin investors that include top hedge funds and money managers feel that the virtual currency could jump as much as five times to as high as $100,000 within a year. And there are reasons behind placing their bets on the world's most popular cryptocurrency, which hit a high of $19,000 on Tuesday for the first time in nearly three years.
The previous all-time high was $20,000. However, the impressive show that Bitcoin has put up over the past few months now have made investors optimistic about a fresh all-time high in the coming months. Various factors have been cited for Bitcoin's strong gains of which one has been the growing faith among institution buyers about the credibility of the virtual currency.
Bitcoin on a Rally
Bitcoin is now well within sight of its all-time peak of just under $20,000 hit in December 2017. The virtual currency debuted in 2011 at zero and was last trading at $18,415. However, that may not just be what hedge fund managers are only eyeing at.
"Going from $18,000 to $100,000 in one year is not a stretch," Brian Estes, chief investment officer at hedge fund Off the Chain Capital, said. That definitely is a massive jump given that not too many people had faith in the cryptocurrency till some time back.
"I have seen bitcoin go up 10X, 20X, 30X in a year. So going up 5X is not a big deal," he added. A 5X jump definitely isn't impossible give the performance of Bitcoin over the past year. Bitcoin has doubled since mid-July and soared over 160 percent since January driven by strong institutional demand as well as scarcity as payment companies such as Square and Paypal buy it on behalf of customers. In November alone, Bitcoin has gained more than 40 percent.
Chain Capital now predicts that Bitcoin could hit something between $100,000 and $288,000 by the end of 2021, based on a model that utilizes the stock-to-flow ratio measuring the scarcity of commodities like gold.
The Rise of Bitcoin
Estes' comments are not baseless given that similar predictions were echoed by Citibank last week. Citi technical analyst Tom Fitzpatrick said last week that bitcoin could hit a high of $318,000 by the end of 2021. He cited the virtual currency's limited supply, ease of movement across borders, and opaque ownership as the primary reasons behind boosting its value.
Several factors have been cited for Bitcoin's strong gains over the past few months. The primary reason is because the crypto industry is now more mature and seen as a credible asset for institutional investors.
Moreover, cryptocurrencies such as Bitcoin provide a hedge again inflation, at a time when governments are running huge stimulus packages to pay for the cost of the Covid-19 pandemic, which has been another big reason for its meteoric rise in popularity.
Supply Crunch Further Boosting Value
Digital currencies depend on so-called "mining" computers that validate blocks of transactions by competing to solve mathematical puzzles every 10 minutes. The first to solve the puzzle and clear the transaction is rewarded new cryptocurrencies like bitcoins.
The technology was designed in a bid to cut the reward for miners in half every four years. This was done to curb inflation. In May, bitcoin went through a third "halving," which reduced the rate at which new coins are created, thus restricting supply.
Moreover, a mail from hedge fund Pantera Capital last week mentioned that companies like Square's Cash App and PayPal, which recently launched a crypto service to millions of its users, have been scooping up all new bitcoins. This has added to the shortage that has further sent bitcoin on a rally.
Although retail investors have been somewhat sidelined due to the pandemic's effect on the economy, the entry of the likes of Square and PayPal retail demand for Bitcoin is likely to get more intense than in 2017.