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Up Up Up For Cryptos – But What Comes Next?

January 04, 2021 at 04:08PM

$20,000 seems so … long ago and far away.

And the question becomes: Why the volatile price action in cryptos – which, in the last few sessions, has been decidedly to the upside?

As of this writing, bitcoin is changing hands at more than $31,000, leagues above the $18,700-and-change level that had been seen only a month ago, backing off a price of nearly $34,000 headed into the very end of the year. The rally has not been confined to that marquee name in cryptocurrencies. As noted by CNBC, other cryptos have been on the upswing. Ether notched $1,000 a token recently, a level not seen in nearly three years. Litecoin, in another example, was up more than 10 percent on Monday (Jan. 4) to about $155.

The rising tide, it seems, lifts all boats – at least as a new year dawns.

Bloomberg noted on Monday (Jan. 4) that the gains seen in the space could be part of a widespread “rotation” from bitcoin into other offerings, taking profits from holdings in bitcoin and putting them to work in alternatives.

On a macro level, there’s some tailwind for money to get put to work in arenas other than the traditional stock, bond and money markets. Investors and speculators, of course, seek yield, and interest rates are still low. Momentum seen in the crypto space is seemingly proving attractive – i.e., people buy because people are buying.

Up, Up and Away 

But there are signs that, as prices surged into a holiday weekend and beyond, things are getting a bit … well, breathless. Yahoo! Finance reported that one coin – Dogecoin, known as an “ironic cryptocurrency,” (and which trades at a bit more than a penny) – saw a trading surge after a positive tweet from an adult film star.

As to who’s buying: Cointelegraph reported that the buying this time around, in the current rally, has been largely the handiwork of institutional investors.

And we’d contend that may eventually create a problem for the crypto industry at large.

If the goal of the crypto firms is to get their respective coins into the hands of retail investors, but the price action is buoyed by institutions, the coins become more expensive.

Large investment vehicles, of course, have millions and billions of dollars at their disposal to chase profits. The more expensive bitcoin or alt coins get, the less likely they are to be held as anything other than a speculative instrument.

To get a sense of how increasingly bifurcated cryptos may become, at least in the near term – i.e., held by investing whales and out of reach for retail investors and, ultimately, consumers – consider the fact that 90 percent of Americans have never owned bitcoin, and nearly 70 percent say they have no plans to do so in the future. That may set the stage for alternatives to the biggest, well-known cryptos (themselves viewed as alternatives to cash). But at least some observers see a broad landscape where cryptos and government-backed forms of digital fiat co-exist.

Ternio CEO Daniel Gouldman told PYMNTS in a recent interview that central bank digital currencies (CBDCs) — ranging from dollars to digital yuan — are expected to take center stage over the longer term (though there will still be room for bitcoin and others to be used in commerce and as investments). Gouldman told PYMNTS the return of Federal Reserve Chair Janet Yellen as incoming U.S. Treasury secretary will speed the development of digital currency.

“Janet Yellen supports blockchain as a technology. She’s very knowledgeable about it,” he said. “I think at some point, cryptocurrency will just be the way, and you won’t even need an app [to use it].”

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