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Is Bitcoin’s True Power Being Revealed as COVID-19 Market Crisis Sends Oil Futures Price Below Zero?

As WTI crude oil futures plummeted into negative territory, Bitcoin hardly seemed to notice, recording only a minor correction and dipping under 7k.

Is Bitcoin starting to reveal its true potential as a safe haven asset? While the pioneer crypto lost relatively little value could it be too early to tell and is the Bitcoin price soon to be in danger? It may also be possible that fewer BTC holders are willing to part with the potential safe haven value store given the current COVID economic downturn. If the shock crude oil crash does not demonstrate a potential weakness in the structure of our global economy and a need for an asset with the promise of Bitcoin, then frankly nothing will.

The sell-off appeared to be mainly attributed to the impending expiration of the the May 2020 Futures contract for West Texas Intermediate (WTI). The expiration of these May contracts force the handover of physical barrels of oil at a time when storage capacity is critically low. According to data from Bloomberg, on April 20, futures for a barrel of WTI crude oil expiring in May lost 36% on Monday.

Source : WTI May futures – Trading View

The sell off continued and at its worst the crude oil price stopped just shy of negative $40 dollars with the contracts finally settling on -$37.63%, a whopping -305% decline which is unheard of in the history of WTI crude oil futures.

The shock crash is indicative of just how much oil demand has collapsed due to the COVID-19 pandemic lockdown which has not been further helped by the ongoing oil price war between Russia, Saudi Arabia and Mexico. As there seems to be no end immediately in sight to the pandemic, the financial community is growing concerned that we may see a repeat of this price action with June crude oil futures.

Oil Plummets, Bitcoin Hiccups

As the crude oil futures plummetted, Bitcoin appeared to be almost at business as usual. Bitcoin which had been experiencing a bullish recovery from its initial fall and was sitting at around $7,200 prior to the crash, in the immediate 24 hours after, the price dropped nearly 5% and currently sits at around $6900 – which is a very small movement in the world of Bitcoin.

Source – CoinMarketCap

Are Bitcoiner’s Safe in their Harbour?

Bitcoin was built in reaction to a broken global economic system. It was designed as an alternative to traditional state-controlled financial currencies and markets. That’s why many have thought for the last 10 years that the Bitcoin price would shoot up if the stock market were to crash.

However, almost as soon as the US stock markets started to crash in February, the price of Bitcoin showed very strong market correlation and also declined. The Bitcoin price halved from around $10,000 to $5,000 in a matter of weeks, shedding thousands of dollars in just a few days. This proves that the first move of many investors wasn’t to rush to trade their stocks for Bitcoin. It was to trade their Bitcoin for US dollars and stablecoins.

Oil’s price action is a testament to the instability of the legacy market infrastructure prevalent in the global economy unable to balance the fundamentals of supply and demand. Bitcoin, however, which continues to dance in and around these traditional markets, held in price against the shocking decline of demand for black gold which has breathed new life into its potential safe-haven status.

While BTC’s movement remains on track to make its post halving bull run seemingly undeterred by the oil crash, the truth is it is just far too early to make a call on its ability to act as value store that will survive through the pandemic crisis.

Another potential issue that hardcore Bitcoiner’s do not appear to be recognizing is that bringing new blood to the market will not be as easy as continually pointing out the failures of our system. Essentially, Bitcoin will only be recognised as a safe haven when its market action reflects this through holdings by investors, but why would these investors suddenly turn to a nascent technology that they hardly understand in the middle of COVID chaos, while in reality, traditional safe-haven Gold is now performing as expected?It may be too early to tell if Bitcoin has gotten away clean from this latest incident in the rising global financial crisis brought on by the COVID-19 pandemic, and it’s still far too early to speculate if it will prevail as a safe haven.

Cryptocurrencies’ Fixed Supply Will Hinder Their Functionality as Actual Currencies, says UBS Economist

Cryptocurrencies have emerged as the new kid on the block in the financial scene, leading to divergent opinions. Paul Donovan, the chief economist at UBS Global Wealth Management, believes that cryptocurrencies hold a fundamental flaw as their supply cannot be slashed whenever demand flops in most cases.

Cryptocurrencies cannot be manipulated

Donovan argued that a “proper currency” should allow central banks to manipulate its supply so that an equilibrium can be restored whenever demand slumps. He noted:

“A proper currency can be a stable store of value, providing certainty that it will be able to buy the same basket of goods tomorrow as it buys today. That confidence is derived from central banks’ ability to reduce supply when demand is falling.”

Donovan alluded to the fact that cryptocurrencies cannot be influenced by switching off their supply. Notably, one of the factors that attract pundits and investors to the crypto sector is the autonomy created by cryptocurrencies as they shun governmental control.

Spending power

The chief economist also delved into the issue of cryptocurrencies’ spending power whenever their value plummeted. He explained:

“People are unlikely to want to use something as a currency if they’ve got absolutely no certainty about what they can buy with that tomorrow.”

The crypto market has nosedived in the last 24 hours after BitMex Research started a Bitcoin (BTC) double spend rumor of around $21. This false information sent Bitcoin price to a low of $28,953, and Grayscale investment saw this as the opportunity to buy the dip and added BTC worth $1.2 billion to its portfolio.

Bitcoin has, however, surged past the $30,000 mark and is trading at $30,581 at the time of writing. Ethereum has also been down by 14.02% in the last 24 hours and hovering around the $1,129 price at press time, according to CoinMarketCap.

3 Reasons Why Bitcoin Price Will Continue Rising

Institutional money continues to flow, price volatility is subsiding, and the Federal Reserve has no plans to taper its economic relief spending—here are three reasons why the Bitcoin price will continue rising this year.

Bitcoin Hedge and Economic Relief Spending

At the conclusion of its FOMC meeting on Wednesday, the United States Federal Reserve voted to keep its key overnight interest rate near zero. The Fed also plans to keep buying $80 billion of U.S. Treasury bonds and $40 billion of agency mortgage-backed securities every month.

The Fed has effectively voted to keep interest rates near zero and doubled down on its commitment to buying massive quantities of bonds each month—continuing the same economic conditions that have aided in the parabolic price rise of Bitcoin.

This news bodes well for Bitcoin’s growing status as a new form of digital gold and a hedge against inflation drew in huge institutional investment throughout 2020, which in turn triggered a retail frenzy at the start of January. The Bitcoin price rose from a low of around $4000 on ‘Black Thursday’ in March 2020, to a new all-time- high of $42,500 in January 2021.

In a note to clients that were obtained by Bloomberg News earlier today, Ray Dalio, the famed founder of Bridgewater Associates called Bitcoin’s store-of-value characteristics an “amazing accomplishment” and one of the few “alternative gold-like assets at this time of rising need for them.”

Dalio had previously been critical of Bitcoin as a store of value and often due to its excessive price volatility, but it appears the founder of the world’s largest hedge fund, with assets under management of roughly $160 billion has changed his tune dramatically.

The man in charge of the firm trusted by institutional investors and other high-net-worth individuals to produce steady returns regardless of the market environment said to Bloomberg:

“To have invented a new type of money via a system that is programmed into a computer and that has worked for around 10 years and is rapidly gaining popularity as both a type of money and a store/hold of wealth is an amazing accomplishment.”

Like other hedge fund managers, Dalio has been critical of Bitcoin in the past. In November 2020, he criticized BTC for its excess volatility, claiming that it could never be an effective medium of exchange or store of value.

Institutional Investment Continues with MicroStrategy

Bitcoin’s dramatic rise last year was mainly attributed to big-time institutional investors such as MassMutual, Grayscale, Square, and MicroStrategy backing the cryptocurrency. With the increased institutional adoption of Bitcoin, the digital asset added over $300 billion to its ever-growing market cap in 2020.

Institutional investment looks set to continue, only today Michael Saylor CEO of MicroStrategy announced it will continue to build on its impressive trove of 70,784 Bitcoins. While most of that was purchased with excess cash, Saylor raised $650 million late last year in a debt offering to buy yet more Bitcoin.

Saylor said in MicroStrategy’s quarterly filling:

“Going forward, we continue to plan to hold our bitcoin and invest additional excess cash flows in bitcoin. Additionally, we will explore various approaches to acquire additional bitcoin as part of our overall corporate strategy.”

Additionally, as previously reported, MassMutual’s $100 million Bitcoin investment in December 2020 could be a signal that an additional $600 billion of institutional investment could be flowing into the BTC cryptocurrency’s marketcap in the near future according to JPMorgan Chase & Co.

According to Bloomberg on Dec. 14, 2020, JPMorgan’s Nikolaos Panigirtzoglou said MassMutual’s $100 million BTC purchase suggests adoption of Bitcoin is spreading from family offices and wealthy investors to insurance firms and pension funds.

Panigirtzoglou predicts that more institutions are going to follow MassMutual’s, the JPMorgan strategist said:

“MassMutual’s Bitcoin purchases represent another milestone in the Bitcoin adoption by institutional investors. One can see the potential demand that could arise over the coming years as other insurance companies and pension funds follow MassMutual’s example.”

The JPMorgan strategist said that insurance firms and pension funds are unlikely to ever make high allocations, but even a small shift toward the cryptocurrency could be significant—with only 1% of pension funds and insurance companies in the US, euro area, UK, and Japan assets needed to accrue an additional $600 billion for Bitcoin’s marketcap.

Bitcoin Price Volatility Subsiding

Despite the increased mainstream investment into Bitcoin, the Bitcoin price has remained volatile, since hitting a record-high of $42,500 earlier this month. Following the ATH, BTC sank by nearly 30% in the following weeks. But has since recovered to the $33,000 level. Will Bitcoin forever be vulnerable to such violent price movements?

On Jan 12, Jeff Currie, the global head of commodities research for major US financial institution Goldman Sachs said that Bitcoin had started to mature but argued that long-term stability of Bitcoin’s value will depend on greater institutional adoption and smart investors.

Eric Peters, the founder, and CEO of One River Asset Management also concurred with this theory, as he told Bloomberg yesterday that Bitcoin’s path to maturity should help stabilize its price.

Peters argues that Bitcoin’s volatile price swings could become less of a concern as institutional buyers with stronger hands continue to push the asset higher.

One River Asset Management has accumulated over $600 million worth of BTC. The asset manager aims to hold $1 billion worth of Bitcoin and Ether (ETH) by June.

He told CNBC:

“There are all kinds of reflexive dynamics in these assets that ironically will lead to less volatility the higher they go […] As the prices are going higher, you are drawing in new types of investors with stronger hands.”

In the short term, despite reports of the surging institutional demand for Bitcoin, Guggenheim’s Scott Minerd says these investors are not enough to keep the BTC price firmly above the $30,000 level.

In an interview with Bloomberg on Jan. 28, Minerd explained that while institutions are interested in Bitcoin, there just are not enough interested yet. He said:

“Right now, the reality of the institutional demand that would support a US$35,000 price or even a US$30,000 price is just not there […] I don’t think the investor base is big enough and deep enough right now to support this kind of valuation.”

Despite his seemingly bearish short-term outlook, Minerd still called BTC a viable asset in the long run. The Bitcoin price is trading at $32,850 at the time of writing, and the above three reasons could be an indication that BTC has a long way to rise in 2021.

Blackrock CEO Says Low Bitcoin Demand from their Clients

In an interview with CNBC Wednesday, Larry Fink, the BlackRock investment asset management company CEO, said he sees low demand for crypto tokens.

Fink, who in the past stated that digital assets could become a great asset class, admits that he is not seeing a huge demand for cryptocurrencies among long-term investors.

The administrator stated that demand for crypto assets are not part of the focus on retirement and long-term investors. He explained that Blackrock investors are more focused on building long-term returns over a long period of time, and they don’t have conversations about cryptos.

He said there is a low demand for cryptocurrencies among long-term investors like individual retirement accounts (IRA) plans, pension funds, and retirement funds, thus putting cryptocurrencies in a similar class as retail-driven meme stocks.

Although Fink is delighted about investors taking an interest in speculative assets, he said that cryptocurrencies are entirely unrelated to BlackRock’s mission.

He acknowledged that in the past, people had been asking him about Bitcoin and other cryptocurrencies, but no such demands recently he interacted with his clients. “In my last two weeks of business travel, not one question has been asked about that [crypto]. That is just not part of the focus on retirement and long-term investors. We see very little in terms of investor demand on those types of things, but quite frankly (many) may not come to BlackRock for that type of demand,” Fink said.

Blackrock is considered the world’s largest asset manager, holding trillion assets under management worth almost $10 trillion.

Crypto as Business Opportunity

Despite Fink’s scepticism on crypto assets, Blackrock has been positive and demonstrated commitment to crypto investments.

In August 2020, Blackrock indirectly exposed to Bitcoin (by purchasing 21,454 Bitcoins worth $250 million) through its ownership stake in MicroStrategy software company. Such investments made Blackrock the biggest shareholder of MicroStrategy (by holding a 15.24% stake in MicroStrategy during that time).

In April this year, SEC filings indicated that Blackrock made $360,000 on Bitcoin CME futures this year, meaning that the firm had allocated a minimal amount of its total $10 trillion managed assets to Bitcoin futures.

In February, Rick Reider, Blackrock’s chief investment officer of global fixed income, said that the company had begun to dabble in crypto assets. He said that although the volatility of cryptocurrencies is extraordinary, people are looking for a storehouse of value.

Bitcoin and other cryptocurrencies have become increasingly popular with institutional investors, big firms and retail investors alike.

In April, BNY Mellon bank announced that it would begin providing Bitcoin services this year. Various investment banks and asset managers, including Goldman Sachs, Morgan Stanley, Fidelity, and JP Morgan, are working to gain cryptocurrency exposure for their customers. PayPal, Mastercard, and Visa are also working to allow digital assets to be used as payment methods on their systems.