Bitcoin to hit new highs, but investors should brace for volatility
The Bitcoin price is nearing the $50,000 mark, and will continue to hit new highs in Q1.
However, investors should also expect volatility as a result of the heightened regulatory scrutiny.
Last week was a huge week for Bitcoin – the world’s largest cryptocurrency by market capitalisation.
Indeed, U.S. investment giant Morgan Stanley is reportedly considering investing in Bitcoin via its $150 billion investment arm; Elon Musk’s Tesla announced it has invested $1.5 billion in the cryptocurrency and was preparing to accept it as a means of payment; BNY Mellon affirmed it had set up a digital assets unit to build a custody and admin platform for crypto assets; and Mastercard announced it would give its merchants the choice to accept cryptocurrencies later on in the year.
Furthermore, Miami has announced it is looking into paying workers and collecting taxes in digital currencies, and the city’s mayor wants to hold Bitcoin in the city’s treasury.
This follows on from Paypal’s decision in 2020 to permit customers to buy, sell and hold Bitcoin, and as Wall Street titans such as Goldman Sachs and JP Morgan issue RFIs (request for information) to explore Bitcoin and crypto asset custody further.
We can see a clear direction of travel here. Institutional investors are taking Bitcoin far more seriously as a financial asset and a medium of exchange. Indeed, they are increasing their exposure to Bitcoin faster than ever before.
As a result, this is driving digital currencies more into the mainstream financial system and, in turn, propelling the price upwards.
With the surging institutional demand combined with ultra-low interest rates, we can predict Bitcoin will reach fresh highs in the first quarter of this year.
Up to now, BTC has already given a 55% return so far year to date after the 300% gain in 2020.
Nevertheless, with the increasing dominance and value comes more regulatory scrutiny.
Bitcoin and other digital currencies will be under the spotlight from regulators like we’ve never seen before, which can be expected to lead to volatility in the market.
Indeed, central banks and governments across the globe are increasing their focus on digital currencies.
Over the past few days in the United States, Treasury Secretary Janet Yellen again hiked the prospect of future crypto regulation, and the Securities and Exchange Commission (SEC) could reportedly investigate Elon Musk over Tesla’s purchase of $1.5 billion Bitcoin.
Institutional investors are increasingly appreciating that in this technology-fuelled, ultra-low interest rate, low growth world, and as trust in traditional fiat currencies dwindles, digital and borderless cryptocurrencies are becoming a better fit.
As such, we can expect the price of Bitcoin to reach fresh highs as a result.
However, investors must remain aware that regulatory pressures will cause price turbulence.