Bitcoin is back!

For a long time, it was quiet around the numerous crypto assets. There has also been little talk about the main protagonist Bitcoin, although its price recently reached its old all-time high again, even against the dollar. In the background, however, many things have developed that are important for large and small investors.

Without much fanfare, bitcoin reached its 2017 high against the U.S. dollar. Against many other currencies, this had already happened before. For some emerging market currencies in particular, the old peaks had already been clearly exceeded. The following chart shows why bitcoin is rated as a good alternative to the domestic currency in many countries. Bitcoin against the Turkish lira is going crazy.

Even though the movement against the Russian ruble is not quite as bad, the current price is not the first all-time high marked this year.

More than 200 million people live in these two countries alone. Since there are numerous currencies that present a similar picture, one should not underestimate the global interest.

Although the topic is slowly being perceived again, the mood is still not euphoric, despite the sharp rise in prices. Most investors have presumably been busy with their traditional portfolios in recent months or have their hands full with adapting their daily lives to the 2020 “random walk of changing regulations”. So it’s not unusual for a non-existential topic to slip through the cracks. A look at the search trends for the keyword “bitcoin” on Google shows how low the interest was compared to the increase in 2017.

Admittedly, three years ago the price rose from the beginning of the year from US$ 1000 to a good US$ 20,000. In comparison, this year’s rise from US$7,000 to US$20,000 looks downright modest. For investors, the lack of euphoria is a good sign for the time being. It helps them to better classify coming corrections and not to panic when the share price drops by 20% between two Bundesliga games.

There has also been a lot going on away from the share prices. In addition to the now ubiquitous topic of decentralized finance (DeFi for short), the most important change for investors is the increasing institutionalization of the crypto world. Private investors were already cavorting on various trading sites a few years ago, participating with varying degrees of success in one of the numerous “Initial Coin Offerings” (ICOs) or simply filling their wallet step by step with bitcoins. Calculating the taxes was a bit of a fiddly job, depending on the trading venue, but otherwise there was not much to consider for the small investors.

What about the institutional investors?
For institutional investors, all this was and is not so simple. Therefore, the accusation of ignorance, while not always wrong, should not be generalized in view of no fewer thoroughly interested professional investors who take bitcoin seriously. Institutional investors simply lacked the opportunity to invest without violating the regulator’s requirements. In addition, the question of custody of digital assets was unresolved or impossible for a long time. One cannot simply connect a crypto wallet to an investment fund via a browser plugin. Such solutions were lacking.

However, the development has not stopped. Many legal hurdles have been overcome in recent years. In the coming months, therefore, more institutional investors should also step out of the dark in Europe and ensure greater awareness of the positive changes in the crypto world. Of course, this is easier for most when prices are higher than when things are just going downhill again. Tell me how the game turned out and I’ll tell you who I was betting on.

The days of the Wild West in the crypto scene are over
Serious projects have cleaned up their processes and significantly developed their software in recent years. Trading venues have also improved significantly in terms of quality. The integration of bitcoin by the payment service providers PayPal and Square also means a big step towards acceptance. This trend will hardly be reversed.

Why should it? Government authorities could hardly wish for much more transparency than the combination of exchange-listed providers that have verified their customers and also linked the corresponding bank accounts from the fiat world.

So in the end, it will probably look like what we know from gold. In one part of the investment universe, the Krugerrands and Vrenelis slumber warm and safe in the vaults of investors. In the case of bitcoin & Co, these are the holdings in the wallets of the owners. A significant portion of the spectrum in both worlds will be traded via ETFs and other investment vehicles. The supply of derivatives is also likely to grow massively.

For the time being, all of this will run through the traditional systems for institutional investors. Investors should not fret about this, because in this form the risk of a tough confrontation with the regulator and the associated risks is much lower than some would have expected years ago. The decision in which form and thus in which part of the universe presented one invests is, after all, left at least to the private investor himself.

DepthTrade Outlook

Investment opportunities with high potential but difficult to classify risks should not be completely ignored. Especially in times when large parts of the bond market show high risks and no existing return potential anymore, investments like bitcoin can be considered similar to “venture capital” investments. Therefore, it is worthwhile for investors to look into this topic. If one decides to invest, then it is important to keep an eye on the position size. Rarely are those who go “all in” the winners in the end.

Ben Schaack Send an email

Mr. Schaack is a financial analyst, specializing in the commodity, foreign exchange, and crypto markets - with more than 10 years of experience. Besides his business analytics studies, Mr. Schaack works as a journalist - covering finance, economy, and geopolitics. His special interests are focused on inflation hedging and exponential (compound interest) growth. He posts and discusses relevant news on his Twitter account.
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