Bitcoin (BTC) is heading higher toward the $40,000 following a pull-back just days ago.
Its huge rally is drawing a lot of attention and comments from many as to whether it is heading higher or about to fall off the edge of a cliff.
Some observers believe a correction in the price could happen
any time soon and are advising caution.
There is no doubting its very powerful recovery and having hit a previous high in excess of $35,000,
BTC would appear to be giving a nod to its 12th anniversary of when
the network was brought into existence. Many traders are optimistically eying the $50,000 mark, with some commentators stating 'the bubble does not look set to burst just yet'.
According to Galaxy Digital CEO, Mike Novogratz, institutions are still entering the space and there are yet more institutional participants that are set to join the party. In his view, it is still early days and he foresees that any dips in the Bitcoin price moving forward, will be bought.
In what he termed the coin's 'supply crisis', reference is made to Grayscale,
(an asset management entity), - which we covered in a previous article here.
Grayscale allows their investors to gain exposure to Bitcoin in their portfolio and Novogratz stated that Grayscale makes Bitcoin more valuable because they lock more coins in its vault.
This is important because there will only ever be 21 million BTC in existence. Once the remaining coins are mined, that will be it! It has long been argued that such scarcity could potentially, greatly enhance Bitcoin's value. Holding (hodling) the asset longer-term means there is less of them in circulation.
With an entity such as Grayscale (hodling) substantial amounts, not to mention the inflow of other institutional investors acquiring as well as the everyday investors, there exists the potential of scarcity on the open market. It is this scarcity that many bitcoin enthusiasts believe will be one of the main drivers behind the future BTC value.
If long, strong hands such as increasing institutional adoption in BTC is the main driver for its continued price appreciation, these participants must also hold the view that Bitcoin is in fact a store of value, which is something that has long been hotly debated by both sides of the currency's camp - the believers and the non-believers.
It is estimated that the digital currency is about to target a peak of $42,000 by end of the week, evidenced by the buying/trading volume and supported by the fact that the MACD indicator being in the 'green'. (MACD - Moving Average Convergence Divergence, a trend-following indicator that signals whether shorter-term price momentum is in the same direction as longer-term price momentum).
Despite this positive forecast, however, it has been suggested that it may probably be the last bullish week for the currency before it experiences a sharp drop in price. At the time of writing, the BTC price is sitting at $39,658
There is an increasing camp of BTC believers saying the currency will be priced at or near $100,000 by the end of 2021. If it is the case that yet more institutional investors, insurance companies, asset managers are to flood into the asset, then in all probability, we could see significant upside at or near year-end.
Do bear in mind, however, it is often the case that when a particular crypto is being touted as 'going to the moon', this marks the precise time when you should, more than ever, exercise extreme caution. Investors should not make the mistake of FOMO (fear of missing out) by jumping headfirst into any cryptocurrency just because it is being talked up. Common sense dictates that the crypto is being pumped and at times this is done intentionally, to inspire (hopium) with newbie investors piling in because it has been implied it is 'going to the moon'.
Unlike some traditional assets, the Bitcoin value cannot be easily measured nor gauged. It is valued at whatever price it is pumped to on a given day, week, month, or year. The asset is in its infancy and this also makes it difficult to accurately assess a true price for BTC. Oftentimes, it is pumped to super-high levels but it can promptly turn around and dump to a tune of 10, 20, 30, 40, 50% or more within the blink of an eye. This volatility makes it vulnerable as an asset class that individual investors cannot feel safe investing in, in the long-term. A substantial drop in its price can, however, mark an opportunistic entry.
Should institutional investors increasingly become longer-term (hodlers)/adopters, the asset could assume the 'store of value' crown, (something it has long been criticised for failing to be). This, alongside the issue of scarcity, could give longevity, bring stability and see appreciation in the BTC price.
Please note that this article should not be interpreted as investment advice, nor is it implying you invest. It is for information purposes only. As per usual, do your own research, rely on no one else's opinion other than your own personal financial advisor's. Do also carry out your own due diligence before any entry into any assets. Remember, cryptocurrencies are extremely volatile and risky.
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