Bitcoin continues to develop convincingly, worth more than a trillion dollars

Bitcoin continues to develop convincingly, worth more than a trillion dollars

10 March 2021 from Sijoitustieto

Many see Bitcoin as a failed currency, but those who believe in Bitcoin see it gnawing at the market share of gold as a store of value. In recent months, Bitcoin has taken giant leaps not only in price, but also in its adoption into the companies’ reserve assets.

The price of Bitcoin has risen from $ 10,000 in July last year to levels of about $ 50,000.

Note: Historical returns are not a reliable indicator of future returns.

Favorable winds for Bitcoin

 It makes more sense for Bitcoin to think about the ratio of its market value to other value preservers, especially gold, rather than price. Due to the capacity of the Bitcoin network, it does not compete with fiat currencies or payment cards in the same league as an active payment instrument. Contrary to the dreams of many Bitcoin maximalists, Bitcoin and fiat currencies could possibly get along well with each other.

Gold currently has a market value of about $ 9-10 trillion and Bitcoin about a trillion dollars. Bitcoin is titled digital gold or internet money. If Bitcoin reaches the market value of gold, then the price of one bitcoin will be around $ 450,000-500,000. As a store of value and a medium of exchange, Bitcoin is more efficient and easier than gold, so Bitcoin's theoretical price cap can be significantly higher than the market value of gold in its capacity as a store of value alone.

In recent months, Bitcoin has garnered a huge amount of acceptance and adoption from various market participants.

Gary Gensler, proposed as the boss of the SEC, the U.S. Financial Supervision Authority, is not against Bitcoin and other cryptocurrencies either.

“Bitcoin and other cryptocurrencies have brought new thinking to financial planning and investor engagement. I am ready to work with other Commissions to promote new innovation, but at the same time ensuring investor protection. "

So far, there is no Bitcoin ETF in the American market. New applications for the Bitcoin ETF have come every year, but the first one shines so far in its absence. The first North American Bitcoin ETF was listed in Canada this year.

American listed companies have begun to adopt Bitcoin on their balance sheets. The game was opened by Nasdaq-listed Microstrategy by buying Bitcoin for over $ 1 billion last year and the company has continued to buy this year. Microstrategy CEO Michael Saylor is currently one of the most prominent Bitcoin preachers. He has made his Bitcoin playbook freely available to other companies.

Tesla is the largest company that decided to turn its company’s balance sheet into Bitcoins for fear of a weakening dollar. Tesla announced in February that it had purchased Bitcoin for $ 1.5 billion and plans to accept Bitcoin as a means of payment for its products in the future.

As the latest company, and the first Nordic company, Norwegian 180-year-old Aker announced that it had bought Bitcoins for $ 58 million and that it intends to keep them in its portfolio on a long-term, or “hodl” as the saying goes (meaning “hold” in the cryptocurrency community).

Other companies that have already adopted Bitcoin include PayPal and Square.

Goldman Sachs said in their article that institutional demand is driving the price of Bitcoin up. This fact makes Bitcoin’s current rally significantly different from the 2017 boom, which was largely driven by speculative retail investors. Right now, Bitcoins are going into more diamond hands. This can be seen in the decrease in the amount of Bitcoin on stock exchanges (red graph), although the price of Bitcoin (black graph) has been rising.

Note: Historical returns are not a reliable indicator of future returns.

When Bitcoins are transferred from stock exchanges to a “cold storage”, their owner is likely to hold them for longer than when Bitcoins are left on the stock exchange.

From Wall Street, Citibank is also starting to change its mind about Bitcoin. The bank understands Bitcoin’s risks, but adds in its report:

Bitcoin’s future is still uncertain, but short-term developments are likely to prove crucial as Bitcoin dances between general acceptance and speculative collapse.

It is clear that over the past year, Bitcoin’s general acceptance has grown significantly and is now a significant factor in the market. Breaking the $ 1 trillion level makes it a potential asset class for even the largest investors, pension funds and sovereign funds.

Citibank made an interesting comment in its report:

Bitcoin could become the currency of international trade.

The idea is interesting, because until now I actually thought about Bitcoin mainly as a store of value instead of a currency.

Why could Bitcoin become a currency for international trade?

  1. Bitcoin is not controlled by any government or person. This automatically raises its credibility as a currency when two states trade with each other.
  2. Bitcoin has a built-in monetary policy. No Bitcoin can be printed, there will eventually only be 21 million coins available after all the mining is done. Bitcoin inflation will continue to fall until it finally disappears completely after all Bitcoins have been mined.
  3. Bitcoin cannot be censored or detained. This is especially important for smaller states as the U.S. uses the dollar’s status as the world’s reserve currency as a weapon.
  4. Bitcoin offers a single currency. This would make it easier to calculate wealth and value globally.

A few companies have already adopted Bitcoin in their reserves, the next big events on Bitcoin's journey could be, for example, the launch of an ETF in the USA. The real bank blaster would be the announcement of the first central bank to buy Bitcoin.

Through Vontobel, you can participate on the Finnish stock exchange through your broker in the price development of the Bitcoin futures without having to open an account on the Bitcoin stock exchanges. MFL BTC1 V1 product offers the opportunity to benefit from the rising prices of Bitcoin futures with a 2.42-fold leverage. If the price of a Bitcoin future goes up by one percent, the value of the product goes up by 2.42 percent. If the price of the Bitcoin futures falls by one percent, the loss will be 2.42 percent. MFL BTC1 V1 will expire if the price of the Bitcoin futures falls to the Stop Loss level of the product of $ 39,948.


Misunderstandings and Risks of Bitcoin

There are many misconceptions about Bitcoin that may have a lower risk than imagined. Of course, there are also real risks.

In the following, we will first go through the misunderstandings and then the biggest risks.

  • Bitcoin is too volatile. Bitcoin is still in the “price discovery” phase, meaning that market players are looking for the right price for it, taking into account all available information. A few years ago, the price of Bitcoin behaved like a penny stock, and big investors could move its price dramatically in a few trades. With Bitcoin’s market capitalization of about a trillion dollars today, individual parties will not be able to manipulate the price as before and over the years Bitcoin’s volatility has declined. If and when its market value rises to the level of the market value of gold to about $ 9 trillion, Bitcoin’s volatility can be expected to match the current price volatility of gold.
  • Bitcoin uses a lot of energy. It’s no secret that the Bitcoin network spends a lot of energy on mining, that is, maintaining the network. According to the BBC, Bitcoin uses 121.36 Terawatt hours of electricity a year, more than the entire Argentine state. On the other hand, a large part of Bitcoin mining takes place with renewable and / or wasted energy, as the mining takes place mainly in the immediate vicinity of energy sources. However, energy is not lost from Bitcoin in the form of high inflation, which makes it a significant factor precisely as a store of value. Bitcoin uses energy to protect and secure a reliable Bitcoin network. How much energy and funds do the armies of different nations use to protect their fiat currencies?
  • Competitors can displace Bitcoin. Bitcoin is an open source protocol, meaning anyone can copy the code and start their own cryptocurrency based on the Bitcoin code. Over the years, competitors have emerged. However, they have quite a mountain to climb, as Bitcoin’s “network effect” is the cornerstone of its success. The more users the network gets, the more valuable the network is. It is not impossible for any of Bitcoin’s competitors to take Bitcoin’s position, but it will be difficult to oust it as its popularity continues to grow.
  • Bitcoin forks. In 2017, it was popular to copy Bitcoin’s entire transaction history and then start a new cryptographic network based on it. The activity is called “forking”. The most significant fork was BCash, or Bitcoin Cash, whose users have tirelessly tried to push their own idea through as “real” Bitcoin. So far, the attempts have mainly failed. Most of the market value goes to a network that is able to retain the best and most active developers. Based on the forks of a few years ago, it can be said that the most experienced computer experts and cryptographers are committed to developing the Bitcoin network.


There are risks in the misunderstandings, but the following factors are greater and more real risks.

  1. Protocol risk. The Bitcoin protocol and the cryptographic technology on which the network is built may contain a design flaw that has not yet emerged. Quantum computers can also make the network more insecure. On the other hand, for quantum computers, better use would be Bitcoin mining than network hacking. Miners in the Bitcoin network are always looking for technological advantages and thus would be at the forefront of the group in adopting the exploitation of quantum computers into the Bitcoin network. The protocol will always be a risk to Bitcoin, but the more time it takes and the more network is used, the lower the risk.
  2. Closures of Bitcoin exchanges. Bitcoin is a decentralized network and has shown considerable agility towards state regulation or closure intentions. Bitcoins are traded on fiat currencies on exchanges that are highly centralized and thus subject to regulation and foreclosure. Without cryptocurrencies and the willingness of the banking system to do business with them, monetizing Bitcoin would be very challenging or in many cases impossible. For Bitcoin, there are decentralized marketplaces and an OTC market, but the critical “price discovery” process takes place on centralized exchanges. A total closure of Bitcoin monetization would require a global closure by states at the same time. This is comparable to shutting down the Internet and, for political reasons, seems almost impossible. However, there is a risk.

If you believe the price of Bitcoin is too high and the price will fall in the future, Vontobel's product MFS BTC1 V8 offers an opportunity to shorten Bitcoin futures. The Stop-loss level for a product is $ 64,538, if the Bitcoin futures rise to this level, the product will mature and be delisted. The risk buffer, i.e. the distance to the automatic Stop-loss level, is 13.1 percent. The leverage of the product is currently 4.48 percent. As the price of Bitcoin futures falls by one percent, the MFS BTC1 V8 value rises by 4.48 percent. If the price of a Bitcoin futures goes up by one percent, the value of the product will fall by 4.48 percent.

Like other Vontobel products, you can trade in Vontobel Bitcoin future products in euros through your broker. The products work and are kept like other securities listed in Finland.

Legal notice

This information is in the sole responsibility of the guest author and does not necessarily represent the opinion of Bank Vontobel Europe AG or any other company of the Vontobel Group. The further development of the index or a company as well as its share price depends on a large number of company-, group- and sector-specific as well as economic factors. When forming his investment decision, each investor must take into account the risk of price losses. Please note that investing in these products will not generate ongoing income.

The products are not capitalprotected, in the worst case a total loss of the invested capital is possible. In the event of insolvency of the issuer and the guarantor, the investor bears the risk of a total loss of his investment. In any case, investors should note that past performance and / or analysts' opinions are no adequate indicator of future performance. The performance of the underlyings depends on a variety of economic, entrepreneurial and political factors that should be taken into account in the formation of a market expectation.

04/10/2022 05:19:55


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