VYSYN Ventures Weekly Insights #24
Unsurprisingly, Bitcoin has been recording significant movement to the upside in recent weeks. At the time of writing, the price is trading roughly 22% above its open on October 18th with recent tests of Q2 2019 highs.
Several developments have fostered extremely bullish conditions for the recent price rise. Significant demand-side has entered from institutions while PayPal has announced it will be adding cryptocurrency services to its 346 million user base.
In the latest VYSYN Ventures release, we analyse these key drivers. We also assess how the Bitcoin market cap might evolve in response to future inflows of capital. Both institutions and PayPal users now have easier access to the Bitcoin market and both control a gigantic pool of capital.
Bitcoin Price Update
Bitcoin has firmly sustained valuations above $10k since its 11% percent price jump in July. The only drops below were recorded in early September which quickly found buyer liquidity.
The lengthy spell above $10k is a bullish development in itself as market participants become more accustomed to Bitcoin trading in the five-figure region. In comparison, previous highs formed in Q2 2019 were followed by a volatile sell-off to sub-$10k territory.
However, as Bitcoin price returns to test Q2 2019 highs, the price activity has taken a more firm footing at these valuations with less volatility as price trades near these historically high valuations. This is primarily the result of more sophisticated capital entering the market which we will detail in the demand-side developments below.
It is important to note that price has retraced almost the entirety of its downtrend which started in Q2 2019. Once 0.618 retracement level is overcome, the odds of the full trend being retraced drastically increase.
If price can surpass and sustain valuations above the previous high, it is very possible that a fresh uptrend will kick into effect. In this case, speculators will be eyeing up record highs and volatile market conditions will likely be observed.
Demand-Side Developments – Publicly-Listed Firms Enter Bitcoin Market
The most bullish development of 2020 was certainly the entry of MicroStrategy to the Bitcoin market. The US Nasdaq-listed firm pumped $425 million into the Bitcoin market as an asset allocation strategy.
MicroStrategy was the first publicly-listed firm to allocate capital to Bitcoin as part of an asset management strategy. This is a monumentally bullish event given that it makes the process smoother for other exchange-listed firms to invest in Bitcoin.
Publicly-listed firms are extremely risk-averse and must justify decisions to their shareholders. After a six-month regulatory approval process, MicroStrategy allocated capital to Bitcoin and the justification now becomes much easier for others following suit.
Square followed shortly after and invested 1% of their total assets – $50 million – into Bitcoin. Exchange-listed firms in other countries are also following with new London Stock Exchange entrant Mode announcing that it intends to invest up to 10% of its $11.65 million cash reserves into Bitcoin.
The list of sophisticated investors goes on. Stone Ridge Asset Management – a fund with over $10 billion AUM – revealed ownership of 10,000 Bitcoin which equates to $139 million at current prices.
Macro traders Paul Tudor Jones and Raoul Pal have publicized positions in Bitcoin and have been extremely vocal in their bullish outlook for the asset. These are only the sophisticated investors which we are aware have taken positions in Bitcoin and may only represent the tip of the iceberg.
An even more bullish case to be made for Bitcoin is the huge pool of corporate capital that may enter the market. With US equities having a market cap of $36 trillion, a swarm of corporates entering the Bitcoin market would force BTC price to increase by orders of magnitude.
Michael Saylor noted that it took MicroStrategy roughly six months to gain approval to purchase Bitcoin. Other firms may currently be in the process of gaining approval with capital deployment possible ready for Q1 and Q2 of 2021.
PayPal Supporting Cryptocurrency
The second most bullish development of 2020 is PayPal’s support for cryptocurrency. The e-payments giant announced that it will be rolling out buy, sell, and hold features for select cryptocurrencies over the coming weeks.
The supported cryptocurrencies include Bitcoin, Bitcoin Cash, Ethereum, and Litecoin. Cryptocurrencies can not be deposited or withdrawn but can be bought or sold from within the app.
This is a monumental development for Bitcoin given PayPal’s user base of 346 million active accounts. This opens Bitcoin up to a monstrous amount of capital which is likely to further increase demand-side pressure.
In 2019, PayPal carried out $712 billion worth of payments. With PayPal users also being connected to PayPal’s network of 26 million merchants, users of the cryptocurrency service will be able to seamlessly make purchases while the merchants receive an immediate conversion to fiat.
The cryptocurrency support will initially be rolled out in 49 of the 50 US states with Hawaii being excluded. Users will initially be restricted to $10,000 buy cap per week and $50,000 per 12 months.
Bitcoin Market Cap Prospects
At the time of writing, the market cap of Bitcoin rests at roughly $254 billion. With a monstrous pool of corporate capital and PayPal account funds sitting on the sidelines, this market cap may be drastically pushed up over the next six months.
The market cap of US equities accounts for $36 trillion. While it’s hard to quantify how much funds could flow in from PayPal’s support, it does expose Bitcoin to another enormous pool of capital.
Even a trickle flowing in from the above sources would be sufficient to bring Bitcoin price to levels which are orders of magnitude above the current trading price. Analyst Willy Woo estimates that if $500 billion flows into the market, it will be enough to push Bitcoin’s market cap to $2 trillion.
This is certainly feasible given that MicroStrategy’s research estimated that 35,000 US firms had a total of $5 trillion in cash on their balance sheets. We are on the precipice of a paradigm-shifting change in the Bitcoin market as the floodgates slowly open for an unprecedented inflow of capital.