The Bitcoin (BTC) exchange rate cracked the impressive $40,000 mark at 7:20 p.m. on Thursday, January 7, 2021. This means it has taken less than a week for the price to jump from $30,000 to $40,000. A pace that can justifiably cause fear. Why the correction has failed to materialize so far and how the exponential price growth can be explained.
On Thursday morning, it was not bitcoin but the overall market that was in focus. Thus, the total market capitalization of all cryptocurrencies has broken through the impressive mark of one trillion US dollars – in figures 1,000,000,000,000. Since the midday hours, however, the Bitcoin price has now also set a new record. On a 24-hour basis, the BTC price is up by more than 13 percent. On a weekly basis, it is even more than 38 percent. Apart from the cryptocurrency XRP, there is no other coin among the top 20 cryptocurrencies with a larger daily increase.
The market capitalization of Bitcoin itself is 720 billion US dollars. This represents a Bitcoin dominance compared to the altcoins of about 69 percent.
The market is greedy for Bitcoin
How greedy investors are for Bitcoin is shown by the Fear-and-Greed Index. This reflects market sentiment and ranges from very pessimistic to very greedy.
As you can see, the pendulum swings all the way to the right. The result: extreme greed. However, this greed is driven primarily by large investors, not retail investors. All crypto asset managers from Voyager Digital to Galaxy Digital are announcing record levels of assets under management. Crypto exchanges are being literally bought out by institutional investors. This is also evident in OTC volumes such as Coinbase Pro, where billions of bitcoin are purchased daily.
Bitcoin securities suck the market dry
The sell-off of Bitcoin, which is still freely tradable, is driven by investment companies such as VanECK, Coinshares or ETC Group, for example, which acquire Bitcoin in order to use it as an underlying asset for their financial products. Here you can find an overview of these Bitcoin securities that private investors can also purchase.
Considering that these are only debt securities like ETNs and not ETFs, the situation shows how dramatic the shortage of Bitcoin is. Bitcoin holdings on exchanges are melting away and being diverted to traditional finance. It is currently not expected that this trend will reverse. After all, only the very few institutional investors are invested in Bitcoin. Many insurance companies, hedge funds and family offices are only just getting involved. If only a few percent or basis points of the funds under management are diverted into Bitcoin, this should enable prices well above 40,000 US dollars in the near future.
Bull market cannot be stopped, not even by a correction
With the trend of large assets being liquidated to allocate a portion into crypto profit, the exponential growth shows an overheating of the market. Profit-taking will lead to a major correction at a certain point, without damaging Bitcoin’s rising trend in the long run. This means that the probability of a violent Bitcoin correction is very high and continues to increase every day, but at the same time there is a lack of fundamental reasons why the bull market should come to an end. This tendency is also reflected by the increased volatility in the bitcoin price:
Thus, it is easy to see that Bitcoin’s 30- and 60-day volatility has increased significantly. The swings up and down have reached a higher level than in the months before.
Bitcoin price: anything is possible
The money-printing orgies of central banks and the simultaneous growth in the understanding that Bitcoin, as digital gold, offers protection against loss of purchasing power, provide valid arguments for further rising prices. It is now perfectly normal for major financial institutions to venture Bitcoin price forecasts that would have been conceivable only by crypto hardliners a year ago. If Nikolaos Panigirtzoglou, Managing Director at banking giant JPMorgan, has his way, the end of the line is still a long way off. His long-term goal is a Bitcoin price of 146,000 US dollars.
If you look at the investor demand and the crypto market entry of companies like PayPal, then 6-digit price forecasts seem absolutely realistic. Especially since one should also not forget here that there is still hardly any real economic inflation. So far, it is primarily asset inflation that has caused asset classes to rise. Should prices in the real economy now also rise, this should give the world’s scarcest asset another powerful boost.