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Bitcoin is on a Roll, Can it Keep on Going?

Bitcoin Rally

  • Biden administration allegedly looking to develop a more comprehensive framework to tackle and regulate cryptocurrencies
  • Move by the White House would be welcome to avoid the piecemeal and inconsistent application of current regulations to cryptocurrencies

Against a backdrop of dysfunction in Washington over the debt ceiling last week, bitcoin quietly rose to put it on pace for its best week in months.

Despite a slew of potentially negative macro news, including a sharp correction in equities and bonds, bitcoin has rebuffed naysayers, soaring to around US$54,500 into the weekend, fueling the fortunes of stocks of companies from Coinbase Global (-1.37%) to Silvergate Capital (+7.20%), which operates the cryptocurrency friendly Silvergate Bank.

Even though China’s central bank, the People’s Bank of China, has outlawed all cryptocurrency transactions last week, pronouncements by the U.S. Federal Reserve and the U.S. Securities and Exchange Commission that they had no intention to ban cryptocurrencies saw the nascent asset class rebound strongly and rally hard.

A Bank of America (+0.50%) report has also called cryptocurrencies an asset class that is too big for investors to ignore, and some analysts are pointing to rising commodity prices, fueling the narrative that bitcoin could serve as a hedge against inflation.

In a report last week, JPMorgan Chase & Co. (+0.076%) said that there are tentative signs of a shift away from gold and into bitcoin, a trend which has started re-emerging in recent weeks, as inflation proves to be stubbornly persistent.

Aggregate open interest in bitcoin options and futures across major cryptocurrency exchanges has also risen by over a fifth last week, according to data from ViewBase, an analytics company.

Rising prices could embolden leveraged bets that cryptocurrencies have even more room to rally.

In comments to Bloomberg, Steve Kolano, Chief Investment Officer at BNY Mellon Investor Solutions, whose team manages around US$30 billion in assets, noted,

“We believe that digital currency is a trend that’s probably here to stay.”

Citing a wave of major central banks looking more closely at digital currencies, Kolano added,

“That digitization is a trend that probably continues and, in a lot of ways, changes the nature of fiat versus digital currency and the way financial transactions happen.”

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