Nickel Digital Asset Management (Nickel) says today’s fall in the price of Bitcoin does not signify an end to the rally in the cryptocurrency. This is because corporates and institutional investors will continue to increase their exposure to the cryptocurrency, and this will fuel long-term price appreciation.
Michael Hall, co-Founder and CIO of Nickel Digital, commented:
“Due to the inelastic supply of bitcoin, it can suffer from upside volatility in thin markets, giving rise to spikes which resolve quickly but usually at higher levels, as has happened several times in recent months, most notably around Thanksgiving. We see no reason to change our constructive long-term view on bitcoin, and the recent wave of institutional engagement supports this. We have also always been clear that bitcoin exposures should be carefully managed to low single digit percentages in multi-asset portfolios”
The Fall In The Price Of Bitcoin Doesn’t Make It Less Attractive
Nickel says there are several factors that make Bitcoin attractive to institutional and other professional investors, which bode well for its long-term prospects. These include:
Inelastic immutable monetary policy
The supply of bitcoin is capped at 21 million and its issuance schedule is hardcoded and completely uncorrelated with changing demand, which makes it a powerful hedge against currency debasement and inflation as governments and central banks roll-out COVID-19 stimulus packages to support economies
Analysis by Nickel reveals that Bitcoin price movements have exhibited a low correlation to equity market moves over the last 10 years. During major S&P500 drawdown periods, Bitcoin demonstrated an independent behaviour pattern. Whilst in several instances of market liquidity implosions (such as March 2020) the price of Bitcoin corrected in unison with the S&P500, on many other occasions it delivered completely opposite returns. This makes Bitcoin an important diversifier for portfolio allocation purposes. For example, in April 2011, the S&P 500 fell by 19%, while the value of Bitcoin increased by 76%. In April and July 2019, the S&P 500 fell by 7% and 6% respectively, but the price of Bitcoin rose by 55% and 14%.
Engagement of large payment platforms
In late 2020 PayPal made Bitcoin available for instant purchase through PayPal mobile application to its 346m users and in early 2021 will make Bitcoin a funding source for digital commerce at its 26m merchants, whilst Visa is offering a credit card linked to bitcoin.
The infrastructure around Bitcoin and other digital assets is improving
For example, established financial institutions such as Fidelity now 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.
About Nickel Digital Asset Management
Nickel Digital Asset Management is a regulated London-based investment firm that offers a range of digital asset strategy solutions for institutional investors. Its mission is to provide a gateway for traditional investors into the digital assets market across a broad range of risk profiles.
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