By Yasin Ebrahim
Investing.com – Bitcoin gave up gains after hitting a record $50,000 Tuesday, but experts say the popular cryptocurrency could double within a year as more institutions add bitcoin to their balance sheets to hedge against inflation.
BTC/USD rose 0.1% to $48,726, and had hit a record high of $50,490 intraday on signs of growing appetite from institution to diversify the balance sheet, which traditionally has been conservatively managed using a mix of bonds, dollars and treasuries.
The trend of institutional balance sheet diversifying using bitcoin is here to stay, and could lead the popular cryptocurrency to more than double from current levels at a time when supply-squeeze is in motion.
"This is just the start of a trend which could see billions of dollars flow into the crypto space over the course of 2021 -- all at a time when the supply is becoming extremely squeezed. The total amount of Bitcoin on exchanges has reduced by a third year on year, which means the upside moves will continue to be aggressive," said Nicholas Pelecanos, Head of Trading at NEM. "$50K USD is euphoric, but I wouldn’t be surprised if the price doubled again within a year," he added.
The record-clinching day for bitcoin comes as Microstrategy (NASDAQ:MSTR), doubled down on its plan to add bitcoin to its balance sheet to hedge against a fall in fiat currencies like the dollar in the wake of central banks adopting lower for longer interest rates.
Microstrategy unveiled plans to raise $600 million from the sale of senior convertible notes to fund the purchase of bitcoin. Microstrategy is widely considered the front runner in leading the move from institutions to consider exposure to bitcoin to diversify their balance sheets.
"There are a number of reasons why Bitcoin is soaring, but what stands out most is the trend that Microstrategy started and Tesla (NASDAQ:TSLA) popularised: moving institutional balance sheets into Bitcoin to hedge against inflation," Pelecanos said.
As well as the favorable macroeconomic backdrop, the increasing liquidity from the approval of new bitcoin securities has also provided a level of comfort to entice further institutional investors to enter the crypto fray.
"The approval of the first publicly traded bitcoin ETF in North America is the first of what is an inevitability as regulators in many jurisdictions continue to evolve their frameworks to allow for alternative products and services to enter into the market in a responsible manner," said Jackson Mueller, director of policy & government relations at Securrency.
"While our northern neighbor is the first out of the gate in approving this type of product, we anticipate the U.S. Security and Exchange Commission is not too far behind."