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Bitcoin needs more than institutional investors to sustain rally

Technext holds conference to discuss the future of Cryptocurrency in Nigeria

After a wild run to multiple all-time highs between December and early January, the price of bitcoin plummeted from a high $42,000 to about $31,000 by Monday, 11 January 2020 despite support from more institutional investors.

Investors saw almost 20 percent of gains wiped off on the back of large investors taking profit from bitcoin after the bullish run. However, the price of bitcoin has started to climb again reaching $36,000 early Tuesday morning before retreating to $35,491.

While institutional investors may be the major movers of the renewed confidence in the market, a sustained market rally will need more than these investors proclaiming the faith in the cryptocurrency they have largely ignored in the past. Bitcoin needs to be integrated more into day-to-day transactions and address its high volatility rate for its high price levels to be sustainable.

In a recent note to investors, JPMorgan claimed bitcoin could potentially reach $146,000 if it can consistently clime by 4.6 times to match gold with a market capitalisation of $2.7 trillion. For that to happen, bitcoin’s price volatility would need to drop substantially to give institutional investors the confidence required to make large bets.

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So far, irrespective of the entrance of institutional investors, bitcoin is on a roller-coaster ride with individuals charging into the market for profit.

According to Glassnode, the number of active addresses reached a new all-time high for the first time since the late 2017 bull market top.

“At its highest point last week, over 1.3 million bitcoin addresses were active in a single day,” Glassnode noted in a Monday report of the market activity. “This continued spike indicates an impressive level of new adoption and activity for BTC and suggests that the number of market participants in the network may be higher than ever before.”

Exchanges like Luno, Binance, Quidax have reported surges in the number of individuals scrambling to buy bitcoin and other cryptocurrencies from their platforms in the past few months.

“I’m glad I finally bought Bitcoin in November (at about $13,000),” Eloho Omame, general manager of Endeavor Nigeria tweeted on Monday. “I first heard the word “Bitcoin” in 2012 when a friend from Business School said “we should just mine Bitcoin” for a group project.”

Large financial companies like PayPal and Fidelity have also made moves in cryptocurrency while the likes of Square and MicroStrategy have used their balance sheets to buy bitcoin.

Some experts say the entrance of institutional investors may not change much in terms of volatility and bitcoin going mainstream as a currency.

“For anything to disrupt the fiat currency and replace it, the value of it needs to be stable. I go into the store for milf, the price in bitcoin or gold needs to be pretty close today as it is next week. Gold is definitely closer than bitcoin using this standard,” said Jason Gwaltney a financial expert.

Peter Schiff, a US stockbroker and CEO of Euro Pacific Capital who calls bitcoin a “fool’s gold” believes that bitcoin has yet to disrupt anything even after it hit $40,000.

“Neither central banks nor governments have lost any power. This will be true no matter how high the price of bitcoin rises. But $10,000 gold would be enough to collapse the fiat system,” Schiff said.