World’s Largest Asset Manager BlackRock to “Dabble” in Bitcoin, while Some Analysts are Still Comparing BTC Market to Tulip Mania

by · Crowdfund Insider

Bitcoin (BTC), the flagship cryptocurrency, keeps surging to all-time highs. 

On Wednesday (February 17, 2021), which was just a day after the digital asset surpassed the $50,000 mark, the crypto had again set a new record above $51,000. Bitcoin is trading at around $51,490 at the time of writing while (earlier) reaching as high as $52,000+.

As the cryptocurrency’s price continues to increase dramatically, analysts have cautioned that the rally may not be sustainable at these prices due to high levels of volatility.

The world’s leading crypto, with a market cap of more than $950 billion (at the time of writing), managed to set a record of $52,577.50, which has been supported by signs of its growing acceptance among major institutional investors and firms like Mastercard and Tesla. The oldest American bank, BNY Mellon, has also announced its Bitcoin-focused plans, while BlackRock, the world’s largest asset manager, has said it is currently planning to “dabble” in Bitcoin-related initiatives. .

Despite this massive influx of prominent investors and mainstream acceptance growing rapidly in 2021, some analysts have cautioned that Bitcoin is still far from becoming a widely-adopted payment method.

Harley Bassman, Managing Partner at Simplify Asset Management, noted that the Bitcoin network is not able to efficiently handle high-volume transactions. Bassman added that it’s definitely not an effective or reliable store of value as its price volatility is currently around 80%. This is “a dozen times higher than the euro and sevenfold of the Russian rouble,” Bassman confirmed.

Bassman added:

“That said, it is a perfectly legitimate speculative asset, quite similar to Dutch tulips in 1636. Will it meet the same fate? That is unclear. As such, size your risk appropriately.”

Dutch tulips from the 1600s had managed to reach extremely high price levels before suddenly and dramatically collapsing in 1637.

Notably, the Bitcoin price has surged as much as 8x since March 2020 (after crashing briefly below $4,000 following the COVID outbreak). The digital asset has added over $700 billion in market value since September of last year. 

JPMorgan analysts have called into question the “magnitude” of these extreme price movements on the back of a total flow of only $11 billion from institutional clients.

The cryptocurrency’s limited or finite supply (based on BTC miners producing a fixed number of new digital coins) has led to the asset’s holders charging a significant premium on BTC entering the market, JPMorgan financial analysts noted. Retail flows might have also magnified institutional investors flows, the analysts argued.

Pat LaVeccchia, Co-chairperson and CEO at broker-dealer Oasis Pro Markets, remarked:

“Bitcoin will be very volatile for a very long period of time, but with what’s occurring with central banks, its attraction is based on macroeconomics. As I look at news that Morgan Stanley, Paul Tudor Jones, and Stanley Druckenmiller, who couldn’t be more traditional, are all exploring or investing in Bitcoin from a diversification standpoint, then it seems Bitcoin is here to stay even if it drops back to $30,000 or $20,000.”

In statements shared with CNBC, Rick Rieder, Chief of Global Fixed Income at BlackRock, confirmed that the fund manager would be “dabbling a bit” in Bitcoin.

Anthony Scaramucci, Managing Partner at SkyBridge Capital and former communications director under the Trump administration, has noted that he believes Bitcoin should reach $100,000 per coin before 2021 ends. He thinks that the crypto-assets’ supply and demand levels should help it cross the $100k mark.

At present, there are around 78% of issued Bitcoins that are either lost (or permanently inaccessible) or they’re being held by individuals with almost no intent to sell anytime soon (if at all). This would leave merely 4 million BTC that is left to be shared among future market entrants, which includes major institutions like PayPal, Square, S&P 500 firms, exchange traded funds (ETF), according to data provider Glassnode.

Current Bitcoin prices, however,  are not really sustainable unless these highly volatile swings begin to stabilize, according to JPMorgan analysts, who previously said the cryptocurrency was somewhat like digital gold.