Arrival of institutional investors and important movements such as Paypal point to new medium and long term perspectives
Chegada de investidores institucionais e movimentos importantes como o Paypal apontam novas perspectivas de medio e longo prazo
The 2020 pandemic year was tense for investors with widespread losses in the first half and some recovery from August. In this adverse scenario, however, Bitcoin yielded 293% in dollars.
In the year 2021, Bitcoin continued with an upward trend, valuing another 194%, with the base closing date being the last day of March 18th. Valuations of this magnitude fuel rumors that a bubble in the financial market may be forming. The thesis defended by the Portfolio Manager of Hashdex, a crypto investment fund company, Joao Marco Braga da Cunha, is that the rise in value in 2020 was based on assumptions that do not suggest a bubble.
“The Bitcoin appreciation process last year and earlier this year was also based on elements that take cryptocurrency to another level. I believe in a sustained rise, even if there is volatility at times, which is natural. ”
The logic of the formation and bursting of a bubble is simple: strong bullishness based on speculation, with the expectation of gains that do not materialize, and frustration leading to the mass exit of investors. Bitcoin faced a bubble in 2017, when it rose by 1,298% and then led to significant losses in its value, down 71% the following year.
Before comparing 2017 to 2020, Hashdex's Portfolio Manager makes an important caveat by remembering that bullish cryptocurrency vectors are different from those that drive other assets, such as stocks. "The main drivers for the price of Bitcoin are internal, such as regulatory news, infrastructure or even a ban in some countries," comments Braga.
“Of course, as we integrate and crypto become part of the portfolio of major investors, other elements will also have their weight, such as risk aversion and demand for liquidity. But today, internal factors are preponderant. ”
About the year 2017, the manager of Hashdex highlights the formation not of a bubble, but of two that fed on oversized expectations. The Bitcoin rally that year came after some cycles of strong ups and downs that the crypto went through since its creation in 2009.
The difference is that 2017 was the first year in which a good number of retail investors were subject to the high volatility of crypto, which drew global attention. “One factor that led to the rally was the ICO fever (from English Initial Coin Offerings). Coins started to be launched all the time, which attracted more buyers and new developers, in a highly speculative spiral ”, explains Braga.
In the second half of 2017, highlights the Hashdex executive, another bubble was formed with the announcement of the Chicago Mercantile Exchange (CME), the largest derivatives exchange in the world, that it would start trading Bitcoin futures contracts. “The reading was that if there is a future market, there will be a massive entry of the institutional ones, pushing up prices, which attracted new buyers. It was a bubble inside the bubble and inflated by small investors, individuals ”, explains Braga.
“The result was not what was expected and there was a wave of strong sales that brought prices down. The somewhat triumphant start of Bitcoin on the Chicago Stock Exchange has frustrated investors who have come out of their positions. ”
Arrival of institutional investors in 2020
One of the differences in Bitcoin's rise in 2020 is exactly the arrival of institutional investors, which was not a reality in 2017. March last year was one of the worst months in the history of the financial market and crypto was not left out.
However, the recovery came very quickly which caught everyone's attention. "There was a day, as on March 15, that depending on the measure, Bitcoin fell 37% following the other assets, but a month after the fall it had returned," recalls the Hashdex manager.
Signals given by major investors, that Bitcoin made sense as an asset to protect the portfolio in a scenario of strong economic stimulus with inflationary risk, weighed in the wave of appreciation of the digital currency.
In May, mega-investor Paul Tudor Jones revealed, in a letter to investors in his funds, that he believed Bitcoin was an alternative to protect himself from what he called "the great monetary inflation". The coin would be the “fastest horse” for this protection. Important houses like JP Morgan and Citibank have produced reports promoting the Bitcoin thesis as the store of value of the future.
