Bitcoin investment gaining traction

gettyimagesbank

By Lee Kyung-min

Bitcoin has quadrupled in value over the past year, increasingly emerging as a new vehicle of investment on the back of continued global uncertainty concerning the COVID-19 pandemic and volatile oil prices.

The uptrend is driven in part by institutional investors seeking to diversify their asset portfolios, a robust move sustained by individual retail investors who believe the digital currency would not be embraced by the large group of global market participants known to prioritize long-term stability over short-term profit unless they have a solid earnings prospect.

The year-long price spike in the once-frowned-upon method of investment is considered largely a vindication by many investors long criticized for engaging in digital transactions that some deem unsafe, akin to gambling and even morally questionable.

Yet still dominant are critical voices that cast doubts over the legitimacy of the digital currency claiming it is not a valid form of currency.

All-time high

According to Upbit, a local cryptocurrency exchange, bitcoin traded at around 32.2 million won ($29,650), Thursday, up 1.13 percent from a day earlier. The price surpassing the 30 million won mark was the first to date, and the gain of 10 million won was made over the past month after it first touched the 20 million won level, Nov. 18.

The previous upward rally led to a high on Jan. 6, 2018 of 28.88 million won, but it had plummeted to 3.58 million won by December 2018.

Bitcoin hovered at around $18,000 after hitting the previous high of $19,462.14, Dec. 3 local time. During 2020, the value of the cryptocurrency has risen about 170 percent.

Institutional investors

Among many behind the rapid price hike was Scott Minerd, chief investment officer at Guggenheim Partners, who in an interview with Bloomberg said that the firm's valuation models suggest that “Bitcoin could go as high as $400,000.” Guggenheim Partners does not own bitcoin, according to local media news reports, but it has reserved the right to set aside as much as 10 percent from its $5.3 billion Macro Opportunities Fund to invest in Grayscale Bitcoin Trust (GBTC), a bitcoin holding company that trades in OTC markets. An increase in the bitcoin price will propel GBTC's share price upwards and generate profits for Guggenheim. The investment firm has been monitoring bitcoin prices since it was valued at $10,000, and Minerd said “Ultimately, we are going to buy it.”

Similarly, British fund manager Ruffer Investment Management in November made a bet on bitcoin worth around 550 million pounds ($745 million). The allocation was made through a third-party manager, and represents around 2.7 percent of Ruffer's total assets that managed 20.3 billion pounds in assets at the end of November on behalf of more than 6,500 investors globally. The firm said it “acts as a hedge to some of the risks that we see in a fragile monetary system and distorted financial markets,” according to reports by Reuters.

Insurance giant Massachusetts Mutual announced on Dec. 11 a $100 million investment in bitcoin for its general investment account, adding that the company purchased the digital currency through the New York Digital Investment Group and took a $5 million minority equity stake in the fund management outfit. “MassMutual said that the investment gives it a measured yet meaningful exposure to a growing economic aspect of our increasingly digital world,” the firm said in a press release.

S&P Dow Jones Indices (DJI), a division of financial data provider S&P Global Inc, said Dec. 3 that it will launch cryptocurrency indices in 2021. S&P's clients will be able to work with the index provider to create customized indices and other benchmarking tools on cryptocurrencies, according to a joint statement released by S&P and Lukka.

Differing views

Blockchain expert Choi Hwoa-in said the price will continue to rise with some ups and downs along the way.

“The quadruple jump in valuation is a strong indication of continued demand for the cryptocurrency as a new asset class, and demand will soar further.”

But according to Antonio Fatas, an economics professor at INSEAD, bitcoin was designed to be a means of payment but is currently not being used as such.

“Bitcoin remains a speculative asset with incredible volatility in its price and with significant operational risks going forward. Thinking of such an asset as a safe haven asset just makes no sense,” he added.