Is Bitcoin's boom just beginning?

As Bitcoin surged through the $20,000 mark for the very first time last week, the principle investment officer of New York-based money manager Guggenheim Partners, appeared on Bloomberg TV to create a startling claim - it should be worth 20 times' that.

Scott Minerd, who heads investment policy for a firm with an increase of than $295 billion of assets under management, said the firm’s interest in Bitcoin have been fuelled by the US Federal Reserve's “rampant money printing that is going on” since it uses monetary stimulus to cushion and offset the financial shocks of Covid-19.

“We made a decision to get started on allocating towards Bitcoin when Bitcoin was at $10,000. It’s a little more challenging with the current price," Mr Minerd said. "But with that said, our fundamental work says that Bitcoin should be worth about $400,000”.

Bitcoin has a lot more than trebled in value because the start of the year, trading at $23,570.46 at 1.13pm on Monday, giving the world’s most popular cryptocurrency a market capitalisation of $440 billion.

New-found enthusiasm among institutional investors has been cited by enthusiasts as one of the reasons as to the reasons this year's boom in Bitcoin differs. The cryptocurrency's previous spike in 2017 was led by retail investors, who were then burned as it subsequently lost 80 % of its value within 12 months, slumping from just underneath $20,000 to $3,200 over another 12 months.

“The recent bull run has certainly got persons talking, but relatively to 2017 public attention has been relatively muted,” Marcus Swanepoel, leader of London-based cryptocurrency asset exchange Luno, told The National.

“2020 was the entire year of institutional investment, with MicroStrategy, Mode, Square and more moving huge percentages of their cash reserves in Bitcoin in a bid to go from the ‘melting iceberg’ that's fiat currency,” he added.

“I think in the event that you go through the whole cycle, 2017 was the hype,” Charles-Henry Monchau, chief investment officer of Geneva-based online bank Flowbank, said.

“The base was not there. The technology was not there, the regulation had not been there, the use had not been there,” Mr Monchau, who has previously served as chief investment officer at Dubai’s Al Mal Capital and Shuaa Capital, added.

He cited your choice by US-based Fidelity Investments, which includes $3.3 trillion of assets under management, to launch a Bitcoin fund for wealthy clients, as a sign of its growing prominence among asset managers.

"Many asset managers aren't payed for being brave. They are paid for avoiding disaster. And I feel that given the actual fact that it’s still volatile, they prefer never to be observed as idiots before an investment committee," Mr Monchau said.

Bitcoin's adoption as a medium of exchange by digital payment companies like Square and PayPal is an indicator that it's being used more often, he added.

Still, for economist Nouriel Roubini, professor of economics at New York University's Stern School of Business and among crypto's fiercest critics Bitcoin "does not have any fundamental value", he said on Bloomberg TV.

"Calling them cryptocurrencies is a misnomer ... to be a currency it needs to be a unit of account, a scalable method of payment and a well balanced store of value. On most of these counts neither Bitcoin or any other cryptocurrency is a currency," Mr Roubini said. "Second, there is lots of academic evidence suggesting that the price tag on Bitcoin has been manipulated ... and it generally does not have any intrinsic value."

Regardless of this scepticism, the amount of trials being conducted by central banks all over the world to create their own digital currencies could prove to be the “Trojan horse” that fuels the growth of crypto assets, Mr Monchau said, as banks would be forced to look at the digital wallets and other infrastructure necessary to process these.

“Just creating all of the infrastructure and systems would be enabling Bitcoin and the primary cryptocurrencies to become more easily adopted by customers,” he said.

Mary Rich, vice president of Goldman Sachs Asset Management’s investment strategy group isn't so sure. She says central bank disruption represents the biggest threat to cryptocurrencies.

“Several central banks are exploring their own digital currencies and we think that once those are unveiled, they’ll provide much more compelling alternatives to the present crypto ecosystem,” she said in a video on the company's website.

Then there may be the question of regulation. The actual fact that cryptocurrencies exist outside formal banking networks sometimes appears as an advantage by enthusiasts, who view it fulfilling an identical role to gold with regards to being truly a store of value within an era of unprecedented monetary easing by central banks. Some 30 % of all of the US dollars issued in history have been printed this season, Mr Monchau said.

Having less oversight helps it be popular for criminals. An Oxford University study this past year found that in regards to a quarter of all Bitcoin users were involved with against the law activities and about 46 % of all transactions, involved the currency being used for illicit transactions.

On Friday, the US government’s Financial Crimes Enforcement Network, FinCEN, said it could require banks and money service businesses to “verify the identity of customers with regards to transactions involving convertible virtual currency or digital assets with legal tender status”.

Earlier this month, the US Treasury Department said Treasury Secretary Steven Mnuchin held discussions with G7 finance ministers and central bank governors on “the evolving landscape of crypto assets and other digital assets and national authorities’ work to avoid their use for malign purposes and illicit activities”.

“There is strong support over the G7 on the necessity to regulate digital currencies,” it said.

JP Morgan’s leader Jamie Dimon also reiterated his view at a fresh York Times Dealbook online conference last month that Bitcoin will eventually be regulated.

“We’re a believer in cryptocurrency properly regulated and properly backed. Bitcoin’s kind-of different and that’s not my cup of tea,” Mr Dimon, who run America's greatest bank, said.

“My experience with the government is they are able to regulate whatever they want when they feel just like it. If it [Bitcoin] gets bigger and bigger, it will be regulated,” he added.

If regulation were introduced, it could not kill off Bitcoin, but it could significantly diminish its appeal.

“Regulatory changes can strongly influence the demand for decentralised coins,” Michael Bolliger, chief investment officer for Swiss bank UBS, said.

Investors concerned about the debasement of fiat currencies will be better off putting their money elsewhere, he said.

“Through the years, Bitcoin and other cryptocurrencies have substantially outperformed a great many other assets. However, their high volatility and large drawdowns cast serious doubt on the suitability as a safe-haven asset,” he said. Annualised Bitcoin volatility stood at about 80 % as of December 20, according to a monthly volatility index created by the Bitmex exchange.

“For investors searching for a defensive tilt with their asset allocation, we currently recommend gold as a safe-haven asset.”