14.01.202114:40 Forex Analysis & Reviews: Investors on the verge of a nervous breakdown: Bitcoin rose $4,000 in a day

The value of the main cryptocurrency – bitcoin - continues to grow steadily on Thursday, January 14. Over the past day, the digital coin has increased in price by 10.2% and is trading at $38,625. Altcoin ETH rose 10.03% to $1,123, while XRP rose 2.44% to $0.297.

Exchange Rates 14.01.2021 analysis

It is obvious that the current increase in the value of bitcoin was supported by the restoration of interest in risk in global markets in the hopes of the fiscal stimulus in the United States. The very fact of such a spectacular return to positive dynamics can spur investors to buy BTC.

Exchange Rates 14.01.2021 analysis

Following the first virtual currency, altcoins also began to grow. As a result, the total capitalization of cryptocurrencies is more than $1 trillion. This is a fairly significant threshold level, the confident overcoming of which will strengthen the support for the growth of the sector.

If BTC crosses the threshold of $40,000 and stays above this mark by the end of the week, the rally will move to a new stage, where even the most cautious investors will stop worrying.

Most likely, the most difficult bar after the fight for $20,000 for bitcoin will be $50,000. This is a fairly significant price level, which has a huge psychological significance for all participants of the crypto market.

However, despite the strong growth of bitcoin in the present, we all remember its roller coaster ride in the recent past. And here a logical question arises: will professional investors decide to invest in cryptocurrency against the background of its uncontrolled volatility?

Experts believe that, despite the growing interest of large pension funds and traditional investors, you should not be deceived.

The digital coin has experienced its worst period since the March collapse in the global market. On Monday, BTC was trading at $10,000 below the high taken a few days ago near the $42,000 mark. However, it recovered to $35,000 less than a day later.

Of course, 2020 was surprisingly successful for bitcoin and made it one of the most profitable assets in the world. The virtual coin rally is frightening with thoughts of a bubble, but at the same time attracts the interest of hedge funds and private investors.

Analysts believe that the current situation in the options market is very similar to what was recorded in March before the collapse below $4,000. In addition, expectations for short-term price movements remain at the peak, which threatens daily fluctuations of the exchange rate by 10%. Given the high volatility and level of past drawdowns, digital currencies can attract speculative investors, but they can hardly be called a suitable alternative to safe-haven assets.

Experts note that actively changing conditions have allowed BTC to compete with gold for a place in investors' portfolios. However, the strengthening market has attracted mostly hedge funds and family offices. Despite serious injections from the private sector, institutional investors still have a rather reserved interest in cryptocurrency.

Bitcoin supporters hoped that the digital coin would protect them from inflation. After all, according to experts, it will grow along with the volume of monetary and fiscal incentives poured into the economy.

At the same time, their opponents say that bitcoin does not allow hedging investments in stocks, since the value of shares and virtual currencies often moves in the same direction.

High volatility remains a serious problem for large conservative investors, who cannot justify the purchase of an asset that fixes daily price fluctuations of more than 10%. Given this fact, bitcoin is unlikely to become a mandatory asset for pension funds.

Despite many rational arguments, the digital coin remains unshakeable. After all, in 2020, its yield outpaced other asset classes, and the yield of hedge funds focused on digital currencies was 194%. In December 2020 alone, cryptocurrency hedge funds earned twice as much as traditional ones.

According to analysts, over the last five months of 2020, demand from bitcoin buyers exceeded the new supply by almost three times.

And even despite the recent unrest, many large investors are still optimistic and see Bitcoin's decline this week as a great opportunity to buy.

However, there are also those who speak about the fate of the digital coin more restrained and suggest that the price of BTC may continue to fall. At the same time, experts recommend that investors who want to protect themselves from a potential decline, options, gold, long-term Treasury bonds, and hedge funds.

Irina Maksimova,
Analytical expert
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