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Bitcoin Tests $40K, May Hit "$50K to $100K": ETFs to Play

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The price of Bitcoin has been going through the roof lately. It took less than a month to cross the difference of $20,000 in value as the cryptocurrency hit the $20,000-mark for the first time on Dec 16 and touched $40,000 on Jan 7. Bitcoin soared about 200% last year. Institutional interest has mainly led to this buoyancy. 

Sergey Nazarov, the cofounder of Chainlink, said a few days back that “rising inflation and increasingly negative views of modern monetary policy are forcing investors to look for alternative ways to preserve the value of their capital,” as quoted on Businessinsider

The currency “will be on the road to $50,000 probably in the first quarter of 2021,” said Antoni Trenchev, managing partner and co-founder of Nexo in London, one of the world’s biggest crypto lender, as quoted on Yahoo Finance.

Let’s highlight the reasons for the rally:

Corporations’ Greater Acceptance

Corporations’ greater acceptance in allowing customers to hold bitcoin and other virtual coins in their online wallets has been favoring the cryptocurrency. PayPal Holdings Inc (PYPL - Free Report) is one such company to have recently announced this move.

This is great news for bitcoin and rival cryptocurrencies. PayPal's competitor Square (SQ - Free Report) launched support for bitcoin back in 2018 through its Cash app. Square also bought $50 million in bitcoin in October as part of a larger investment in cryptocurrency.

Other companies that accept bitcoins include Microsoft (MSFT), AT&T (T) , Dish Network (DISH) Burger KingDomino’s Pizza (DPZ) , Goldman Sachs (GS) among others. Facebook-backed cryptocurrency Libra has also been rebranded “Diem” in an effort to gain regulatory approval by refurbishing the project in a simpler manner.It is run by a consortium called the Diem Association.

David Marcus, the head of Facebook Financial, also known as F2, said he hopes the cryptocurrency called Diem will hit the market in 2021. A bitcoin ETF could finally see the day of the light in 2021 as VanEck recently filed an application with the SEC. Notably, the SEC had earlier rejected several bitcoin ETF proposals (read: VanEck Files for a Bitcoin ETF All Over Again).

Is Bitcoin a Digital Gold & Hedge Against Inflation?

JP Morgan Chase & Co. said recently that the upsurge of cryptocurrencies in mainstream may replace gold. Bitcoin is likely to outdo gold as millennials will be playing an important role in driving the investment market in the long run given their preference for “digital gold” over traditional bullion, JPM indicated.

Investors are probably viewing it asa hedge against inflation and an alternative to the depreciating dollar, per market watchers. There have been about $7 billion outflows from gold and more than $3 billion of inflows into the Grayscale Bitcoin Trust, per a Reuters article.

However, JPM noted that the bitcoin price needs to soar fivefold (which results in $146,000) from here (market cap of $575 billion) to match the value of private gold wealth held in bars, coins or exchange-traded funds.  However, the bank now sees chances of a $50,000 to $100,000 level of bitcoin, though it will likely remain unmaintainable due to extreme volatility.

Central Bank Digital Currency (CBDC) Concept Spreading

Several central banks are considering the rollout of CBDCs lately. China has been taking serious moves toward no-touch payments. In efforts to match with China, seven major central banks last week set the key principles for issuing CBDCs, per Reuters. China's recent experimental $1.5 million (1.16 million pounds) giveaway of digital yuan to Shenzhen citizens received kudos from currency analysts.

Not only PBOC, other central banks are also walking the same path. Sweden’s Central Bank, Riksbank is conducting a pilot project with Accenture to prepare e-krona. The European Central Bank (ECB) is mulling over the rollout of a "digital euro" for the 19-nation currency club.

A digital, or virtual, euro would be an electronic version of euro notes and coins, it would be a legal tender and guaranteed by the ECB. On Oct 19, Jerome Powell, Chairman of the Board of Governors of the U.S. Federal Reserve, said that the Fed is committed to considering a CBDC but made no final call on it.

How to Play?

Though bitcoin ETFs are not available to investors, they have blockchain ETFs at their disposal. Per a source, “the blockchain in Bitcoin literally acts a ledger; it keeps track of the balances for all users and updates them as money changes hands.”

So, if investors cannot lay their hands on a bitcoin ETF now, they can definitely familiarize themselves with the concept through blockchain ETFs like like Amplify Transformational Data Sharing ETF (BLOK - Free Report) . ETFs offering exposure to the blockchain ecosystem via semiconductor companies that make chips for bitcoin mining (or could make for some potential CBDCs) can be played. The most-popular funds include iShares PHLX Semiconductor ETF (SOXX - Free Report)  and VanEck Vectors Semiconductor ETF (SMH - Free Report) .

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