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Investors are piling into bitcoin, and this time the cryptocurrency rally is different
- February 1, 2021: Vol. 8, Number 2

Investors are piling into bitcoin, and this time the cryptocurrency rally is different

by Frank Holmes

Bitcoin, the world’s biggest cryptocurrency, surged nearly 220 percent during 2020, at one point trading at an all-time high of $23,717. Ethereum, meanwhile, shot up almost 400 percent in 2020 to around $640, which is still down 31 percent from its record high.

I’ve seen numerous market “experts” declare this another crypto bubble similar to 2017. But unlike then, the current run-up is driven not just by retail investors but also big-name investors, institutions, hedge funds and more.

Those include people such as billionaire investor Paul Tudor Jones, who’s buying bitcoin in response to unprecedented money-printing by the Federal Reserve Bank, as well as firms like Massachusetts Mutual Life Insurance (MassMutual), which purchased $100 million of the digital currency. Although $100 million is a relatively small position for the insurance company, it was enough to turn some heads.

“MassMutual’s bitcoin purchases represent another milestone in bitcoin adoption by institutional investors,” J.P. Morgan strategists wrote in a recent note to clients. “One can see the potential demand that could arise over the coming years as other insurance companies and pension funds follow MassMutual’s example.”

Another bitcoin bull is Scott Minerd, chief investment officer of Guggenheim Investments, which has $233 billion in total assets under management. Speaking to Bloomberg, Minerd said he believes bitcoin should be worth — are you sitting down? — $400,000. His outlook is based on bitcoin’s scarcity and relative valuation to gold as a percent of GDP.

“Bitcoin actually has a lot of the attributes of gold and at the same time has an unusual value in terms of transactions,” Minerd said.

Crypto miners and blockchain firms have likewise done well. HIVE Blockchain Technologies was up nearly 2,800 percent in 2020, which has pushed its market cap above $950 million. This puts it on a trajectory to soon hit a $1 billion valuation.

Keep in mind that cryptos are still extremely volatile. Bitcoin, for instance, has a daily standard deviation of plus or minus 5 percent. That might not sound like a whole lot until you compare them to gold, which has a daily standard deviation of only 1 percent.

Soon there may be another way for investors to participate in cryptocurrencies besides buying them outright or investing in miners like HIVE. The North American crypto trading platform Coinbase has submitted paperwork to the SEC in preparation for an IPO. The Silicon Valley unicorn is valued at an estimated $28 billion, according to data firm Messari, and sees around $1 billion in trading volume every day.

Coinbase isn’t the only online exchange that’s weighing a public offering. Robinhood, the six-year-old trading app favored by younger, less experienced investors, is eyeing the first quarter of this year as a potential IPO target. After stocks collapsed in March and April of 2020, the number of people who downloaded and started using Robinhood surged to 13 million, up from 2 million three years earlier. These millennial investors beat Warren Buffett at his own game, buying up distressed airline stocks at a time when the Berkshire Hathaway chief was selling.

 

Frank Holmes is CEO and CIO of U.S. Global Investors.

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