Why bitcoin’s $20k+ valuation is very different to 2017

Nickel Digital Asset Management (Nickel), the investment manager connecting traditional finance with the digital assets market says today’s rally in the price of bitcoin is very different to 2017 when the cryptocurrency nearly reached $20,000.

Unlike three years ago, current buying is driven by corporates, major institutional holders, dedicated funds, and retail platforms such as Square and Paypal.

Nickel Digitial Asset Management: Bitcoin tripled in value

Bitcoin has tripled in value in 2020 and is now trading around $23,000. Nickel says that unlike 2017’s rally which was arguably the combination of a cross-border transfer squeeze and a speculative bubble, the corporates and institutional investors buying into crypto assets today are typically strategic allocators with a long-term investment horizon.

The Covid-19 crisis, and the extraordinary monetary and fiscal response to it, has triggered a fundamental and ongoing repricing of risk assets, within which bitcoin, the ultimate monetary hedge, has a central role to play.

Many institutions are using bitcoin to cover the tail risk of currency debasement and inflationary pressure, triggered by the recent large-scale monetary expansion.

In addition to this, established financial institutions such as Fidelity offer bitcoin custody services, and several major central banks are seriously considering the possibility of developing their own digital currencies, which would provide a strong endorsement for the concept.

Anatoly Crachilov, Founding Partner and CEO of Nickel Digital, commented: “Bitcoin’s main investment thesis is a store of value and a powerful inflation hedge.

This is now being increasingly accepted by forward-looking investors. Indeed, the verifiable and immutable scarcity enforced by the Bitcoin protocol has created an asset capable of protecting capital at the time of monetary expansion around the world.

Family offices, mandated with capital protection, were the first movers to embrace this new inflation hedge, followed by the macro hedge fund money.

Now we are seeing traditional asset managers and, increasingly, insurance companies exploring allocation to this asset class to address structural asset-liabilities mismatch, exacerbated by a $17 trillion pile of negatively yielding global bonds”.

Michael Hall, Founding Partner and CIO of Nickel Digital added: “Currently inflation-linked bonds and inflation swaps are richly priced, while real estate, another traditional inflation hedge, remains an overcrowded and illiquid trade.

Gold continues to perform the role of store of value, however, if traditional gold does well, bitcoin, the digital representation of the gold, will do even better.

After all, it possesses all key attributes of gold, including scarcity, durability, and portability, whilst offering another important angle — it is a powerful technology play, offering online and global transmission of value in a decentralised manner, something traditional gold clearly lacks. Bitcoin price has decoupled from gold in 2020.

Indeed, while gold has delivered a respectable 20% gain, Bitcoin eclipsed this by 200% appreciation. Bitcoin is an engineered money”

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