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Bitcoin Takes Next Hurdle: What's Coming After Jumping Over $ 40,000?

With Bitcoin, events are rolling over and over again. It was only towards the end of the previous year that the cryptocurrency cracked the old record high of just under 20,000 US dollars, and by the end of the week the mark of 40,000 dollars was due. The credo behind this rapid increase: More and more institutional investors are discovering Bitcoin as an inflation protection, it is considered digital gold. While conventional currencies such as dollars or euros can in principle be increased at will by the central banks, this is not the case with gold and bitcoin.

"The demand for alternative investments is increasing," says Simon Peters, an analyst at the investment service provider eToro - and finds clear words to explain it: "Institutionals worldwide view Bitcoin as both a growing asset and an insurance against the great fear of 2021: inflation. "

Bloated amounts of money

Since the Corona crisis, the monetary authorities have actually been turning the big wheel to cushion their economic effects. Between January and November 2020, the US Federal Reserve inflated its money stock (measured by the M2 money supply) from 15.4 to 19.1 trillion US dollars - which corresponds to an increase of almost a quarter within a few months. During the same period, the number of bitcoins only increased by 1.9 percent to 18.53 million, because new units first have to be generated using computing power - and this is only possible up to a maximum of 21 million bitcoins.

According to eToro analyst Peters, the momentum behind the Bitcoin surge is unlikely to diminish, especially since the "generosity of central banks and governments" would undermine the values ​​of traditional investments such as bonds. "Cryptocurrencies are becoming mainstream," postulates Peters. "With this positive momentum, Bitcoin is well on track to hit my price target of $ 70,000 to $ 90,000 by Christmas 2021." However, until then, volatility, i.e. price setbacks, should be expected.

Raiffeisen Research warns against such in a current Bitcoin analysis. "Various indicators that measure the mood in the markets suggest that the crypto market is currently overheated - and that is actually not a good sign," says analyst Manuel Schleifer. Investors should therefore not blindly chase the market, i.e. not buy at any price.

With spread price targets of more than 100,000 dollars - even a million dollars is oracles in some places - Schleifer advises caution anyway: According to him, the underlying models are based on very optimistic and greatly simplified assumptions. Nevertheless, he says the bottom line: "As a small addition to a broadly diversified portfolio with different asset classes, Bitcoin and Co have their right to exist in the current environment."

Decreasing price dynamics

Bitcoin's rise has been rapid over the past few months. In the long term, however, the momentum behind the price gains is even waning (see grafic)As eToro analyst Peters also states: In the bull market up to 2013, as strong upward phases are called, the price rose from low to high by 500 times, in the bull market by a hundred times by 2017. Now he expects a twenty-fold increase, which results in his previously mentioned price target.

Overall, the market for all cryptocurrencies recently passed the one trillion dollar mark. The number two on the market, Etherium, has also regained its footing and is approaching the record high of 1329 US dollars in January 2018. Nevertheless, with a total value of 626 billion dollars, which corresponds to a share of just over 70 percent, Bitcoin remains the undisputed top dog in the market for cryptocurrencies. (Alexander Hahn, 9.1.2021)