Bitcoin is performing this entity . Following a 50% slump from the cryptocurrency’s price to roughly $4,000 at mid-March, when Covid-19 fear was grasping the financial markets, it’s bounced back to trade about $11,200. Experienced crypto-watchers have observed this rapid change from fear to numerous days before, and understand it could have debilitating consequences.
The very first time Bitcoin’s price went beyond five characters from 2017, it fueled a speculative frenzy that stopped almost as soon as it started, resulting in an 80% slump over 12 weeks. And when Bitcoin climbed over $10,000 in February this year, some expectation to get a rally was snuffed out by Covid. The following mad rush to exchange electronic coins for cash was made worse by the fact that lots of people were using considerable quantities of debt to their trading back. Many crypto hedge funds shut.
Is anything different this time? Bitcoin’s rampant price swings undermine its instance as a trusted store of value or secure harbor. It’s still 43% below its high of nearly $20,000. However, as a “store of fear” — Warren Buffett’s description of this short term pessimism that compels investors to cryptocurrency — it has its own fans.
Like stone, whose price has jumped as central banks and governments invest trillions of dollars to fight the depreciation downturn, a few large New York titles are speaking up Bitcoin as a hedge against the inflationary spiral or money crisis. Citing its algorithmically-controlled supply cap of 21 million, billionaire investor Paul Tudor Jones commended Bitcoin’s “scarcity premium” at May and stated between 1% and 2% of his resources were held at the electronic money as security at a low-interest-rate world. Medallion, the flagship fund of quant pro Renaissance Technologies, obtained the go-ahead to put money into Bitcoin futures April.
This industry narrative of insurance from the financial apocalypse (almost like a grownup variant of this “money printer go brrr” meme) has some logic to it.
The current stimulus-fueled stock-market rally has abandoned 71% of fund managers believing stocks are overvalued, based on some Bank of America July poll. Diversifying into golden may make sense, especially in a universe where Covid-19 instances are flaring up once again. And for the finance manager made to find winners in a marketplace where everything’s up, a little Bitcoin may also function as “schmuck insurance” if the tenfold price increase it experienced in 2017 were ever to repeat itself. Bitcoin is more volatile than — and less correlated to — gold and equities these days, according to research firm Kaiko. That’s what makes it attractive to some risk-hungry hedge funds, who make their living from market swings.
The snag is just how dangerously unpredictable Bitcoin is — even when compared with gold, which has a habit of not doing what bankers expect. Demand for Bitcoin is speculative and emotional, rather than tied to fundamentals such as adoption of virtual currencies as an everyday payment method. And supply is squeezed artificially, not just algorithmically. An estimated 60% of Bitcoin supply is hoarded and 20% ‘lost’ or untouched, according to research firm Chainalysis.
As more hedge-fund sharks (and day-trader minnows who want to keep up with Tudor Jones and his ilk) head back into the murky waters of Bitcoin, they’ll be swimming alongside the “whales,” the big crypto investors who hold their fortunes digital coin. The market moves of these individuals tend to thrash the price around.
Some whales will probably be looking for opportunities to cash out after life-changing gains. Investors holding between 1,000 and 1 million Bitcoin account for 42% of all Bitcoin supply.
As my Bloomberg Opinion colleague Aaron Brown put it last year: “I doubt they (the whales) have infinite patience, and without significant growth in actual use, I would expect them to quietly withdraw to chase other promising technologies.” So far, the market moves have been pretty noisy. Last year, a single large Bitcoin sale knocked 10% off its price. When the next sell-off hits, a of the harshest hedge fund critics of central-bank stimulus might wish for a bailout of their own own.
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on https://www.bloomberg.com/ / view/articles/2020-07-30/bitcoin-is-a-tasty-meal-again-for-hedge-fund-sharks