Bitcoin resumes rally on Elon Musk support, hedge-fund buys
Bitcoin rose on Wednesday morning in Asia, helped by optimism from large investors, with a potential ban in India failing to dampen sentiment.
Bitcoin gains 6.8%
The price of Bitcoin (BTC) ticked up 6.8% day-on-day to trade at US$36,169 as of 08:41 SGT on Wednesday (03 February 2021).
The world’s biggest cryptocurrency has retreated about US$5,000 since hitting an all-time peak of almost US$42,000 on 08 January 2021, although it is still up 26% from end-2020.
JPMorgan Chase & Co strategist John Normand said in a note last Friday that BTC could be due for a ‘drawdown’, considering that its rally has been ‘steeper than any other financial innovation or asset bubble of the past 50 years’.
Why does Elon Musk like BTC?
Last Friday (29 January), Tesla founder and tech billionaire Elon Musk changed his Twitter profile to read: ‘#bitcoin’, triggering a short-lived 20% climb in the cryptocurrency’s price. It pared its gains through the day as US equity markets declined.
Musk went on to say on Monday that Bitcoin was ‘on the verge’ of receiving broad acceptance by ‘conventional’ investors.
The Tesla founder expressed support for the cryptocurrency, adding that he was ‘a little slow on the uptake’ and should have bought it eight years ago. BTC spiked to almost US$34,500 on Monday after Musk’s comments.
Institutional interest in BTC still growing
Bloomberg Intelligence strategist Mike McGlone said that BTC’s key support lies at US$30,000, and ‘there appears to be a rising wave of institutional interest buying all dips’.
US-based One River Asset Management’s CEO Eric Peters noted that his hedge fund’s holdings of digital assets has surpassed US$1 billion. Peters also pointed out the growing institutional adoption of cryptocurrencies.
MicroStrategy Inc this week purchased another 295 Bitcoins for US$10 million in cash, at an average price of about US$33,810 apiece. As of Tuesday, it held about 71,079 Bitcoins that were acquired at an aggregate price of almost US$1.15 billion.
Bridgewater Associates founder Ray Dalio’s positive comments on BTC also helped to prop up sentiment, traders said. The hedge fund manager last Thursday wrote in a note to clients that the cryptocurrency was ‘one hell of an invention’, and he viewed it as a ‘gold-like alternative asset’.
Dalio added that his firm was considering cryptocurrencies for two new funds. However, even though Bitcoin could potentially make investors ‘very rich’ and ‘disrupt the existing monetary system’, cryptocurrencies are still vulnerable to being hacked and subject to regulatory restrictions, Dalio said.
Potential bitcoin ban in India
Separately, India is planning to implement a new law to ban private cryptocurrencies such as BTC, according to a legislative agenda published on Friday.
The country may also create a framework for an official digital currency to be issued by its central bank.
The legislation is meant to ‘prohibit all private cryptocurrencies in India, however, it allows for certain exceptions to promote the underlying cryptocurrency and its uses’, the agenda noted.
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