The Second Bitcoin Boom: Whale Watching and the Dollar

Bitcoin (BTC) has been one of the best investments of 2020. How “best?” It was trading Dec. 7 at $19,250 after starting off the year near $7,000 in January and depreciating to as low as $5,400 in early March.

Smartphone with Bitcoin chart on-screen among piles of Bitcoins
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In fact, the value of the 18,564,675 Bitcoin in circulation is $356 billion. By comparison, the market capitalization of JPMorgan Chase (NYSE:JPM), the country’s biggest bank, is $372 billion.

The price of the imaginary asset has nearly doubled since mid-September. While Bitcoin has been rising, the dollar has been falling. It’s now down 12% from its April peak, trading at 90.81.

BTC Value is not a Coincidence

While your stock portfolio may look good, it’s valued in dollars. The value of the dollar, like the value of everything else, can be volatile. During the current pandemic, the Federal Reserve has flooded the market with new dollars. This has had an impact on the price.

Goldman Sachs (NYSE:GS) and Morgan Stanley (NYSE:MS) both see further weakening in 2021. This is hurting exporting countries that depend on a strong dollar. The global financial system is showing strain.

Bitcoin has become an excellent hedge against the dollar. But given the small size of the market — Facebook (NASDAQ:FB) is worth more than twice as much as Bitcoin — any institutions that use this hedge quickly become “whales,” that is, big enough to shift prices. Right now, 95% of all the Bitcoin is held in just 2% of accounts.

Non-Whale Whales

That’s a little misleading because some of the biggest new “whales” aren’t really whales at all.

PayPal (NASDAQ:PYPL) and Square (NYSE:SQ) are the new big buyers of Bitcoin. Small investors can now buy Bitcoin directly from PayPal and Square apps.

It seems like everyday, a new app is available to make that Bitcoin investment all the easier. Part of the reason is the growing use of crypto in everyday transactions.

“The industry is already past the speculation stage and has moved to a point where freelancers and independent workers are being paid in BTC, people are giving it as a gift instead of cash,” said Ouriel Ohayon, co-founder and CEO of digital wallet ZenGo. He told InvestorPlace that in the app’s first year of operation, customers have transacted more than $100 million through it.

And while many of those using the new apps are typical retail investors, they are hearing what the whales are saying as they pound the table for Bitcoin, including Paul Tudor Jones, who compares investing in Bitcoin today to the early stages of a tech company. In a thin market, one big trader can move it. As Bitcoin becomes easier to buy, that impact is magnified, small fish following big fish.

Institutional Support

Institutions can buy Bitcoin through the Greyscale Bitcoin Trust (OTCMKTS:GBTC), which has seen its price double over six months. Its trade volume spiked in November. JPMorgan analysts think this is how asset managers and people running family trusts have gotten into Bitcoin. Fidelity Investments is also developing a Bitcoin trust vehicle. Institutional investors can develop a Fear of Missing Out (FOMO) just like smaller ones.

However, the new whales are unlike the old whales, who were mainly early holders of Bitcoin determined to keep the market trade thin. The new whales are institutions trading for customer accounts.

Some will want Bitcoin the way their fathers held gold, as a hedge against inflation. The older hedges aren’t working. The SPDR Gold Trust (NYSEARCA:GLD) saw a rally earlier this year fizzle out. Others are trading among themselves, but the balance is such that the “whale” holding the accounts stays in the market.

The Bitcoin Bottom Line

Regardless of whether Bitcoin is a real asset or not, it’s a real market. Even Nouriel Roubini, Bitcoin’s fiercest critic, now admits it can be “a store of value.”

This means that love it or hate it, Bitcoin is a real thing.

All assets rise and fall in value against other assets. No money is “real.” It’s only real when it’s exchanged for something else of value. Everything hangs on belief, whether it’s the value of Bitcoin or JPMorgan Chase stock.

As more institutional investors buy into Bitcoin, its status as a real asset grows. Investors who once touted gold now tout Bitcoin as the ultimate inflation hedge. So long as they believe in it, Bitcoin has real value.

On the date of publication, Dana Blankenhorn did not have (either directly or indirectly) any positions in any of the securities mentioned in this article.

Dana Blankenhorn has been a financial and technology journalist since 1978. He is the author of the environmental thriller Bridget O’Flynn and the Bear, available at the Amazon Kindle store. Write him at or follow him on Twitter at @danablankenhorn.

Article printed from InvestorPlace Media,

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