Bitcoin and crypto break out: what’s behind the optimism?

11 Oct, 2021
Bitcoin and crypto break out: what’s behind the optimism?

It was a big week for Bitcoin and altcoins as more positive signs are emerging for digital currencies in the mainstream markets. Bitcoin (BTC), the world’s first digital currency, gained nearly 14% and surpassed the $1 Trillion market capitalization mark, the first time since before the May market meltdown.  Ether (ETH), the number two coin, gained nearly 5% and other top coins realized gains as well.

The optimism is largely credited to seemingly favorable growing sentiment by the U.S. toward the cryptocurrency market.

U.S. Approves ETF.

On October 5, the US Securities and Exchange Commission (SEC) approved the The Volt Crypto Industry Revolution and Tech ETF (BTCR). The fund will invest “a majority of its net assets in U.S. and foreign companies with exposure to bitcoin and its supporting infrastructure,” the SEC filing states, defining those domestic and foreign businesses as “Bitcoin Industry Revolution Companies.”

Tad Park, CEO of the fund, told Markets Insider that he is “eying MicroStrategy, Marathon Digital Holdings and Bitfarms, among others,” for the actively managed fund.

"I'm a strong believer in bitcoin and was excited about launching an ETF that could take advantage of the coming bitcoin revolution," he told Insider. "We can get exposure to bitcoin without necessarily holding the coin, especially with options positions."

The New York Times Deal Book praised the approval, calling it a win for crypto. “It’s not quite a pure Bitcoin E.T.F., but it brings the industry closer to that long-sought goal,” Park said to DealBook.

Bitcoin as Inflation Hedge

Adding to the positivity in the market was JP Morgan’s Global Market Strategist Nikolaos Panigirtzoglou’s October 6 research note to clients, which stated “Bitcoin’s allure as an inflation hedge” is bringing institutional investors around.

“The re-emergence of inflation concerns among investors appears to have renewed interest in the usage of bitcoin as an inflation hedge,” he explained on LinkedIn. “Bitcoin’s allure as an inflation hedge has perhaps been strengthened by the failure of gold to respond in recent weeks to heightened concerns over inflation, behaving more as a real rate proxy rather than inflation hedge. Indeed the fund flow picture shows tentative signs that the previous shift away from gold into bitcoin seen during most of Q4 2020 and the beginning of 2021 has started re-emerging in recent weeks.”

“Decoupling” from the Stock Markets

Beyond inflation fears, the digital currency market appears to be holding its own against more sobering economic reports that have impacted the traditional stock markets, which have been roiling since September. The S&P is down 5% since its September 2 record, and Bitcoin is up 10%, Bloomberg reports. This “decoupling” of crypto from traditional stock markets is sending a signal that yes, crypto has a life of its own.

“The decoupling of Bitcoin and stocks could revive one of the longstanding promises of cryptocurrencies heralded by their proponents -- that they can serve as a hedge to protect investment portfolios when equities sell off during times or turmoil,” Bloomberg said.

No Ban on Crypto in the U.S.

The Bitcoin rally this week may have gotten a boost from Federal Reserve Chair Jerome Powell’s statement on crypto during a September 30 hearing before the U.S. Financial Services Committee.  When asked if the government would ban crypto as China recently has, Powell responded with a firm “no.”

Powell’s response echoed that of SEC Chairman Gary Gensler, who, affirmed that the U.S. approach to crypto is quite different than China’s. During the hearings, he outlined five crypto projects underway designed to help develop a framework for the industry.

“I think that this technology has been and can continue to be a catalyst for change, but technologies don’t last long if they stay outside of the regulatory framework,” he said. “I believe that the SEC, working with the CFTC (Commodity Futures Trading Commission), and others, can stand up more robust oversight and investor protection around the field of crypto finance.”

Protection, not rejection.  Another positive sign that Bitcoin and cryptocurrencies are now seen as a new and valuable asset class.

Joyce Pavia Hanson