The end of the 'crypto winter' looms: these are the tailwinds that are driving bitcoin again

After the darkness, great hopes.

Bitcoin started the year with unbeatable news.

On January 10, the US SEC authorized the marketing of ETFs linked to bitcoin, a moment long awaited by followers of this cryptocurrency.

It meant putting the purchase of bitcoins just a click away for millions of investors in the country most likely to place part of their savings in the markets, something like being admitted to the Wall Street club.

They no longer need to open accounts on industry platforms such as Binance or Coinbase, or even more difficult, get a cold wallet to store them.

Now, all they have to do is open their broker and click buy.

The moment, however, was somewhat anticlimactic.

After the favorable announcement by the North American regulator, the price of bitcoin fell, confirming, only for a few hours, the famous saying: buy with the rumor, sell with the news.

It was just a bump.

For just over a year, the underlying trend shows that bitcoin is only going up.

Its price has exceeded $50,000 and has turned the so-called crypto winter into a bad dream.

“The approval of the ETF represents the institutionalization of bitcoin as an asset and exposes the growing acceptance of cryptocurrencies in traditional finance,” says Francisco Maroto, head of digital assets and blockchain at the BBVA Group.

Reviled by academics and Nobel Prize winners in Economics — a pyramid scheme for Paul Krugman, a tool of money laundering and tax evasion for Joseph Stiglitz, a speculative bubble born of an epidemic of enthusiasm for Robert J. Shiller —, disparaged by famous investors — “It's like going to the casino,” Warren Buffett

said

.

Left for dead every time its price plummeted, but always capable, until now, of resurrecting, it can be said that bitcoin has established itself as an investment asset despite the fact that its daily use as a currency has stagnated.

“Bitcoin is not an alternative to fiat money.”

[effective], you don't have to look for your use cases there.

Bitcoin increases transaction costs for payments, and is also inherently volatile,” explains Álvaro D. María, author of

The Philosophy of Bitcoin

(Deusto, 2024).

currency exchange

While the idea of ​​a bitcoin competing on equal terms with our euros loses strength, and the utopia of it being a currency to buy a home, a car, go to the supermarket or make daily payments through transfers fades, its position is reinforced. as an investment.

“The main value proposition of bitcoin is to park wealth, transmit value over time.

That it is used more and more for this is essential,” adds Álvaro D. María.

That music, that of granting it a role as a store of value, is reminiscent of that associated with other safe haven assets—those that, no matter what happens, be it an economic crisis or a spike in inflation, will always have some value.

Not in vain, there are those who call bitcoin the new digital gold.

Deutsche Bank analyst Marion Labore is one of those who shares this idea, although with nuances.

“People have always looked for assets that were not controlled by governments.

Gold has played this role for centuries.

And yes, you could potentially see bitcoin become the digital gold of the 21st century.

Let's not forget that gold has also been historically volatile.

But it's important to note that bitcoin is risky: it's too volatile to be a reliable store of value today.

And I expect it to remain very volatile for the foreseeable future,” she states in a publication from the German bank.

Whether or not it is similar to gold, the truth is that it has been very profitable for the majority of its holders.

Although it is still below the $69,000 it reached in November 2021, its all-time high, in the last 12 months it has more than doubled its price, and if you go back several years, the returns multiply.

Among all investment assets by market value, bitcoin would currently occupy tenth place, with a capitalization of more than one trillion dollars, slightly behind Meta, the owner of Facebook, Instagram and WhatsApp, in a ranking precisely led for gold (13 billion dollars).

Taking advantage of that wave, Coinbase, the American platform for buying and selling cryptocurrencies listed on the American stock exchange, has doubled its stock market value in six months, and obtained its first quarterly profits in two years.

When an event as long awaited and talked about by the crypto community as the arrival of ETFs finally materializes, the basic question is: what now?

Francisco Maroto, from BBVA, responds.

“In the short term, positive net investment flows towards these products can be expected, as is already being observed.

The next logical step is to move forward with the launch of more ETFs with another cryptoasset (such as ethereum) or basket of cryptoassets as underlying.

But it is very difficult to predict.

We have to wait for regulation to advance and the technology and the market to mature.”

Although it has shown unpredictable behavior, there are several catalysts to think that good times are ahead for bitcoin.

Just as the increases in interest rates by central banks penalized it, the decreases planned for this year favor it.

Trading floor of the Nasdaq technology market in New York.

Stephanie Keith (GETTY IMAGES)

A recent report by Funcas titled

Cryptoassets in the new financial context: interest rates, price and adoption

, prepared by Santiago Carbó, Pedro J. Cuadros-Solas and Francisco Rodríguez,

alludes to this increasing correlation.

“The economic cycle is beginning to be connected to the behavior of crypto assets.

The evolution of inflation and, in particular, interest rates, in response to generalized price increases, seems to have a relevant impact,” the text concludes.

The bottom line is that the more rates go up (or the expectations that they won't go down), the less crypto is worth.

“High rates make them less attractive to investors because they can obtain higher returns on public debt, corporate bonds or bank deposits,” the study concludes.

The rate cut is only one of the stimuli, but there are those who see others with more potential.

“Looking ahead, the most important issue in the bitcoin network continues to be the next

halving

scheduled for April,” says Manuel Villegas, digital assets analyst at Swiss bank Julius Baer.

The

halving

is the halving of the reward given to miners for validating bitcoin transactions and takes place every four years.

Because it is important?

Theoretically, it tends to reduce the supply of new bitcoins, and as there is more scarcity, its price rises.

There are those who doubt that this phenomenon is really a driver of the price of bitcoin.

Because the market, by waiting for its arrival, has been able to discount it earlier.

Or because any negative event can counteract it.

However, according to a report from Deutsche Bank, historical patterns indicate that after previous

halvings

the price has tended to experience an upward trajectory.

“In the five days after the first

halving

on November 28, 2012, it rose more than 8%.

After the

halving

on July 9, 2016, it increased more than 3%, and in the five days following May 11, 2020, it appreciated by 8.5%,” they recall.

There are the ETFs, there are the falling rates, there is the

halving

, and there is a fourth factor: the call effect.

For those on the fence about whether to enter or not, few things produce more FOMO than seeing bitcoin rise with them out of the market.

Knowing that others are making money and you are not, even if that means taking extreme risks.

The acronym FOMO takes the initials of the English expression

Fear of missing out

, and is a powerful accelerator of purchases.

Funcas cites studies that try to give a scientific veneer to this intuition, and quantify it like this: an increase of one percentage point in the price of bitcoin is related to a 0.9% increase in new users after two months.

A cryptoasset ATM in Hong Kong.

Paul Yeung (BLOOMBERG)

The push for ETFs not only comes from their greater accessibility.

“There is no doubt that investors around the world have been attracted to the new products because of the lower relative costs involved,” says Villegas.

The funds launched just after approval by BlackRock and Fidelity are already noticing this fever, with billions raised in just a few days.

The low commissions of these instruments make entry barriers more porous and democratize these investments.

For better and for worse.

Supervisor Notice

As Deutsche Bank recalls in its report, the approval of ETFs is far from being an invitation from the authorities to invest in them.

“It is important to note that the approval of these funds by the SEC came with a warning from its president, Gary Gensler,” they say.

Gensler emphasized that bitcoin “is primarily a speculative and volatile asset that is also used for illicit activities… We do not condone or endorse bitcoin.

“Investors should be cautious of the myriad risks associated with bitcoin and products whose value is tied to cryptocurrencies.”

That is, the SEC allows you to buy it, but does not recommend it, as if it were a betting house.

Adolfo Contreras, senior advisor at Blockstream, a Canadian company that develops a range of products and services for the storage and transfer of bitcoins and other digital assets, believes that the use of cryptocurrency is particularly interesting in countries with little legal security or where people distrust their government.

“Bitcoin will become a kind of fourth estate.

When a Government abuses it, citizens will make their assets secret and vote with their feet.”

That is, they will move where there are more favorable laws towards bitcoin and the tax bill is lower.

This libertarian idea of ​​money escaping the confiscatory voracity of governments explains part of the fascination it arouses in certain areas.

“The creators of bitcoin were cypherpunks and what they intended was to enforce our rights (private property, privacy, etc...) in cyberspace, a domain in which laws do not work.

That is why bitcoin works particularly well in jurisdictions where there is little legal certainty,” says Contreras.

In the sector they believe that the collapses of TerraLuna, Genesis, BlockFi, FTX and many other firms, beyond the significant hole they have left in the accounts of millions of clients and the reputational damage for cryptocurrencies, are part of a creative destruction that In the long term it will serve to clean the ecosystem, as only those who have done things well and are reliable survive.

The memory of those bad days seems to have been eclipsed by the latest wave of purchases.

“This bull market is going to be even stronger than the one in 2021. Not only because of the price, but because of the entry of the institutional part,” confides Jorge Soriano, CEO of the Spanish platform Criptan

.

“

The road ahead is long.

There are phases that we cannot skip.

One of the main triggers will be the integration and adoption by traditional banking,” he adds.

The financial entities that have taken this step are very few.

One of them is the Austrian bank Raiffeisenlandesbank, self-proclaimed as the first traditional entity in the EU through which it is possible to buy and sell bitcoins, ethereums and other digital currencies.

It started allowing it in January.

According to the Funcas document, 5% of Spaniards own some cryptocurrency, a figure similar to that managed by the National Securities Market Commission (6.8%).

Who are they?

The analysis center says that they are men, young, study or work, live in large urban areas, and enjoy high monthly incomes.

It also analyzes your psychological profile.

“They tend to have a higher risk tolerance compared to those who have not purchased cryptocurrencies.

They are more impatient, have lower levels of self-control and are more willing to accept losses on an investment if profits above normal market rates can be expected.”

The golden age of risk

Having surpassed $50,000, the next peak for bitcoin to beat are those all-time highs of $69,000 reached almost two and a half years ago.

With the US stock market at records, the Japanese one hovering around them 34 years later, and some European stock markets such as the German one also at or near their peaks, risk lovers are living a golden age.

When that happens, the word bubble soon appears in the vocabulary.

But a never-before-seen valuation does not have to imply that the enthusiasm is unjustified.

And for ordinary mortals, anticipating it is practically impossible, and the bubbles are only known when they burst.

Víctor Alvargonzález, founder of Nextep Finance, gives some clues to identify them.

“What we have now is not euphoria.

Euphoria was experienced in 1987, with

Wall Street

as the highest-grossing film.

Also in 2000 with the Internet portal Terra, which became worth more than Endesa.

Or with TerraLuna and cryptocurrencies in 2021. To know if that phase has been reached, there are technical and other common signs: when friends start asking about the stock market or cryptocurrencies, as happened with bitcoin;

when there is financial advertising where there usually is not, such as on marquees or football stadiums;

or when your neighbor brags about his investments.”

It is the modern version of the anecdote attributed to oil magnate John D. Rockefeller.

A few days before the stock market crash of 1929, his driver asked him how the stock market was doing, and all his alarms went off.

If even the drivers invested in the stock market, it couldn't end well.

We will have to pay attention to the signs.

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