Jim Duffy: Bitcoin on a roll as investor momentum gathers

'Smarter' money pouring into Bitcoin is attracting more positive sentiment, says Duffy. Picture: Ian Howarth.

As I have been writing about and investing in cryptocurrency for a while, interested parties and mildly curious folks have contacted me to find out more. As Bitcoin decided to boost its standing by jumping 10 per cent, people were getting very excited. I suggested some caution and that what was needed was not a moonshot, but a steady and sustainable rise.

However, such is the wildfire sentiment in the cryptosphere that 10 per cent was not enough; the bulls wanted more. For perspective, a very decent fund manager would be delighted if she had delivered 10 per cent net year-on-year. Now, as Bitcoin has risen sharply, should those wishing to enter the crypto space now be wary?

The last time Bitcoin saw a meteoric rise was in December 2017. It jumped from around $3,000 to nearly $20,000 within a fortnight. To the disappointment of many, it ended up back hovering around the $3,000-mark a few months later. What is different this time? Why could this daddy of the cryptosphere actually maintain some credibility with its investors and those who want a punt?

Like any rise in stock that looks a bit unexplainable, but exciting, there will always be the FOMO factor: the fear of missing out. There is a feeling in the global community that Bitcoin has grown through its formative years as a petulant teenager. As it matures into young adulthood, it is looking at a steady career path, so to speak.

Hence, money is moving into it and those watching from the sidelines are signing up to digital exchanges to buy a bit of a “golden ticket”. Not everyone has $11,000 to buy a whole coin. Many are pound cost averaging to buy a small fixed amount every month. This is bolstering support and widening the scope of Bitcoin ownership.

The next factor is the interest of institutional investors. While retail investors, the likes of you and me, purchasing Bitcoin on a small scale certainly helps sentiment, it is only when bigger, more structured finance houses invest that it will truly fly.

As of 17 June, open market interest in Bitcoin at the CME Group witnessed contracts totalling $246 million dollars. That is a staggering 26,555 Bitcoin. It seems investors now have an appetite for cryptocurrency as well as corn, oil and real estate. As “smarter” money pours into Bitcoin, this in turn attracts more positive sentiment. This is a major shift from the 2017 retail-led price jump.

Finally, the macro-economic picture before us impacts the future of Bitcoin and any value it has. Mario Draghi, European Central Bank head, floating the notion that more monetary stimulus could be on the way for Europe if the economy does not improve, prompted Donald Trump to weigh in.

The president suggested Europe would have an unfair advantage and that America should also act to protect its currency. It is these exchanges in traditional fiat currency that appear to make it unattractive, as more money is simply printed. Bitcoin’s ‘digital gold’ sticker comes into sharper focus as it has a fixed and transparent supply, that is decentralised and that no one country or politician can control. Perhaps a place of safety when central banks get dovish when nothing else works in our capitalist system.

These impacts could have a powerful effect on how Bitcoin performs in the next 12 months. What they potentially demonstrate is that Bitcoin as part of the cryptocurrency landscape is real and being adopted like never before. Yet, I wouldn’t remortgage the house, sell the car or borrow on my credit cards to get into this market. Like all investments, a balanced, cautious and well-researched approach is key. Still, the ducks appear to be stacking up in the right direction for Bitcoin. How it will play out is still anyone’s guess.

- Jim Duffy MBE, Create Special.