Is the Bitcoin market a bubble like 2017?

As Bitcoin has been steadily rising to new heights that have never been seen since 2017 – when the coin has the highest value in its history, Bitcoin proponents hope that there are now few investors. Smaller investment of 2017 means less likely to cause a “bubble” incident for this coin.

Because Bitcoin is still not widely used as a form of payment, plus the global financial market is uncertain, investing in Bitcoin is not a safe choice.

“(This time) there’s a lot of difference from what has happened before,” said Larry Cermak, research director at crypto media company The Block.

“Prices have been steadily rising, we see very little participation from retailers and much better liquidity and more accessible (compared to 2017) market participation for institutional participants. However, for the time being, this is definitely not a safe investment, it is still very risky. ”

Bitcoin broke the $ 18,000 threshold on Nov. 18 to reach its highest level since December 2017. From the beginning of the year until now, this currency has increased by about 160%.

Bitcoin in 2020 repeated things like 2017, when the frenzied retail investor bought in and pushed its value to nearly $ 20,000, but just a month later fell more than 50%.

However, unlike 2017, the asset that is currently ‘the brightest’ of these investment addresses now has a derivative market and has attracted more transactional engagement from financial institutions. .

The fact that Bitcoin is traded over futures contracts is one of the factors that makes Bitcoin attract the interest of institutional investors, which is the reference price, as futures contracts will be required. are based on publicly referenced daily transaction prices and compiled from various price sources. The reference price may not be perfect, but it is the basis for calculating price fluctuations or other price types in daily trading.

The value of Bitcoin futures contracts with open interest rates on CME – the largest stock exchange in the world, has a long history of success with futures sales – has exceeded $ 1 billion. for the first time since its launch in December 2017 this week, while positions on major options markets have risen to over $ 4 billion, from virtually nothing in early 2019, according to cryptocurrency data provider Skew.

Meanwhile, major companies including Japan’s Fidelity Investments and Nomura Holdings have begun taking part in securing Bitcoin and other cryptocurrencies for institutional investors.

Ryan Selkis, CEO of crypto data firm Messari said: “It is absolutely impossible to compare the Bitcoin of 2020 – much more ‘matured’ than it was in 2017.” By then, it was almost impossible to compare. There is no derivative market, a credit market and institutional custodial services for this currency. ”

The advent of this series of ‘financial infrastructures’ has made it easier for professional investors, from hedge funds to family companies to access cryptocurrencies. This can also help increase liquidity for Bitcoin, and make prices less volatile.

Supervision regulations have also changed. Although the cryptocurrency sector is largely unregulated, there are global standards related to anti-money laundering, paving the way for the participation of large investors.

Governments and state-owned enterprises were among the first to embrace digital currency technology.

Last month, PayPal Holdings Inc said it would open its system to cryptocurrency, while its rival Square Inc said it had invested 1% of its total assets in Bitcoin.

On the other hand, unlike 2017, Bitcoin’s price has been aided by a desire for high-risk assets amidst governments and central banks thrusting money to counteract the negative effects. by Covid-19.

According to Bitcoin investors, the supply of this currency is capped at 21 million units, proving it can help investors protect their assets when monetary policies cause inflation.

However, despite many policy changes regarding Bitcoin, the currency remains volatile. And in fact, the cryptocurrency sector is still something more opaque and loosely regulated compared to traditional financial markets. The Bitcoin transaction data is still patchy, and there are concerns about market manipulation.

“In short, it’s still a risky market and a risky asset,” said Colin Platt, a crypto consultant. And despite all the rumors, Bitcoin is still unlikely to become as reliable an asset as its founders intended.

“There is no guarantee that Bitcoin will be widely used as ‘money’ due to the cost of mining and using it, and cannot be used easily with the payment card function or via smartphones when The holder wants electronic payments, “said Russ Mold, chief investment officer at AJ Bell.

Reference: Reuters