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Cryptomania in 2021

By Peter Rosenstreich
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Diversifying your portfolio with cryptocurrencies is making a whole lot of sense as we head into 2021. Bitcoin is on a bull run and while digital currencies are known for volatility, when it’s good, it’s really good.

Uncertainty around digital currencies have long been peddled by major banks and governments, and there drawback to investing in the stock. The anonymity of the currency initially made it a smart choice for engaging in illegal activity, and there’s a level of vulnerability to the underlying infrastructure. Except for a few cryptocurrencies, this is changing as transactions can now be tracked with the user’s public key. The personal details of the wallet owner remain protected, however certain institutions are introducing identification protocols and require information regarding the origin of the funds.

That said, the pros are outshining the cons. Corporations are putting their money where their doubt may have been – the most recent major milestone being PayPal accepting Bitcoin as payment for its network of 26 million retailers. Investor interest, both retail and institutional has followed suite with confidence in cryptos steadily increasing.

The 2018 crash was a cautionary tale for many. Jaws dropped as Bitcoin went into freefall, losing about three-quarters of its value, going from an all-time high of $19,738.06 to $3,400. Other digital currencies followed a similar trajectory.

Fast-forward and the phoenix have risen from the ashes. Bitcoin and other stalwarts such as Ethereum have proven resilient, and are becoming more widely accepted as a means of economic exchange, providing a strong rationale for the higher price.

As an alternative asset class, cryptocurrencies continue to demonstrate astronomically high returns relative to the risk tolerance required for investing. Coupled with ultra-low interest rates and market volatility sparked by COVID-19, it’s becoming a popular choice for diversifying beyond gold and traditional currencies, especially against the backdrop of zero – if not negative – interest rates, in both corporate and treasury markets.

Standard pitch in hyperdrive
Bitcoin offers protection against inflation and dilution of fiat currencies. Quantitative easing programs, and money printing in general, have a positive effect on gold, Bitcoin, and other ‘safe haven’ assets
There’s a finite number of Bitcoins – just under 21 million – so by design, the rate of creation is decreasing
Billionaire investor, Mike Novogratz, dubbed bitcoin ‘digital gold’ as recently as October 2020. As new generations of investors discover cryptos to be a better store of value and protection against inflation, Bitcoin is partially suppressing gold appreciation
As we progress towards a cashless society and the adoption of cryptocurrencies accelerates, it’s likely Bitcoin will appreciate and the value of fiat currencies depreciate.
Exchange regulators’ acceptance
· It’s likely only a matter of time before crypto will be listed on the Nasdaq, which would add credibility to blockchain and its uses as an alternative to traditional currencies. The Chicago Mercantile Exchange (CME) will add ETH futures to its offering from February 2021, citing significant growth in ether transactions and client demand as key drivers of the decision.

· Approval of a Bitcoin ETF could provide a meaningful surprise to the digital currency ecosystem, opening up the industry to investors keen to investing without some of the risks and technical knowledge associated with buying and selling tokens directly.

Institutional Investors
· Institutional investors allow for significantly larger trading volumes than private investors. That means if cryptocurrencies are floated on the Nasdaq or a similar exchange, it will immediately get a boost in reputation as a viable asset class.In addition, there are rumors that the U.S. Office of the Comptroller of the Currency is expecting to reveal the first national “crypto bank charter.”

Mainstream Acceptance
· 2020 saw a striking evolution in Bitcoin adaptation with prominent fintech companies getting on board. Square made a landmark investment of $50 million and PayPal joined the ranks, paving the way for others to follow in 2021.

Policymakers enter the game
· In 2020, the Bank for International Settlements issued a report and survey indicating that 80 percent of the world’s central banks are working on some form of digital currency.
· China is blazing a path forward, experimenting with digital yuan. Recently, in the Chinese city of Suzhou, 100,000 residents each received stablecoin equaling 200 renminbi via a digital wallet.

Cryptocurrencies came about to shake up the financial system and they’ve certainly achieved that – and proved resilience while doing so. Rather than swim against the tide, governments and major financial institutions around the world are taking the classic ‘if you can’t beat them, join them’ route. There’s money to be made in 2021, and they want in too.