Bitcoin has rallied $1,000 in the last 24 hours after payments platform PayPal (PYPL) announced that it would begin accepting payments in digital currency. PayPal has over 26 million merchant accounts and 345 million users on its platform that will soon be able to buy, hold, and sell Bitcoin. The announcement also stated that Ethereum, Litecoin, and Bitcoin Cash would also be supported with the full rollout coming in 2021. PayPal’s President and CEO Dan Schulman said in the press release:
"The shift to digital forms of currencies is inevitable, bringing with it clear advantages in terms of financial inclusion and access; efficiency, speed and resilience of the payments system; and the ability for governments to disburse funds to citizens quickly".
The move has reverberated around the financial markets and excited the cryptocurrency enthusiasts, who have waited patiently for signs that cryptocurrency payments would enter the mainstream.
Data and news suggest Bitcoin is a maturing asset
I noted at the beginning of this week that data showed Bitcoin could be ready for a big move. Last week’s Commitments of Traders report from the Commodities and Futures Trading Commission (CFTC) showed institutional traders had built up a record number of futures positions in BTC. While institutions were at record-long open interest, leveraged funds were near record shorts, and one of them was set to be wrong.
While the futures positioning was moving to extremes, the implied volatility of BTC at-the-money options was also at levels not seen since 2019, ahead of the rally which topped in summer of that year. The low volatility expectation meant that a move in either direction could be sharp and lead to the unwinding of positions that were caught in the wrong direction. The blast through $12,000 has set up that dynamic, and short-covering will have helped to drive BTC towards $13,000, with the key resistance only $1,000 above that level. If the price gets above there, then a move to the all-time highs is possible.
The increasing interest from professional investors is one sign of Bitcoin maturing as an asset class. Another sign is that the coin is now being taken more seriously as an inflation hedge and anti-dollar play, with the coin moving with the swings in the U.S. dollar that have accompanied market fears over inflation and the levels of debt and spending in the U.S. economy. Another sign of Bitcoin’s increasing status was its ability to shake off the turmoil at the BitMEX and OKEx exchanges. The former was charged over un-registered trading, while the latter saw one of its key holders going “out of contact” after assisting authorities with an investigation. September also saw a $281 million hack of the KuCoin exchange.
These events used to shake Bitcoin’s price and send it lower, but it may actually be doing the opposite by confirming Bitcoin as a safe haven. Recent data by Glassnode has confirmed that, showing holdings on exchanges are plummeting to lows not seen since 2019.
Cryptocurrencies may be in the “first inning”
Legendary Wall Street investor Paul Tudor Jones boosted the price of Bitcoin earlier in the year when it was retesting the $10,000 level by saying he had a small investment as an inflation hedge. Tudor Jones suggested then that the coin would likely outperform the returns of gold in that aspect. Following the PayPal news, the Hedge Fund guru has said he likes Bitcoin “even more than I did then”.
He added, “Bitcoin has this enormous contingence of really, really smart and sophisticated people who believe in it. It’s like investing with Steve Jobs and Apple or investing in Google early”. His final statement was that Bitcoin’s rally could be in the “first inning”, and it is hard to argue with that statement in light of the PayPal news.
Risks to the Bullish Thesis are Largely from CBDCs
The risks to the bullish thesis in Bitcoin are largely from the growing desire for the world’s largest economies to pursue central bank digital currencies (CBDCs). The world’s largest economies are in the advanced stages of developing their own CBDCs. China has been a leader on this front with its digital yuan, but the U.S. and Europe are also exploring the move. European Central Bank President Christine Lagarde commented earlier this month that a digital euro should be issued to trade alongside the fiat version, but it is possible that the latter would be phased out rather quickly.
As the world’s central banks and large corporations continue to make moves into digital currency, the path to digital currency looks inevitable, but some currencies may be left behind. Global central banks will want to continue their control over the issuance of the money supply, and regulation from governments to clamp down on decentralized forms of money can’t be ruled out. This could mean that cryptocurrency projects, which are pure methods of payments, may see their freedoms curbed. Bitcoin would be one of these, but the coin is seeing a growing status as a store of value, and this may protect its valuation going forward.