Bitcoin Nears $67k All-Time High as Inflation Hedging Theme Builds

Bitcoin is approaching its all-time high of $67,000 and Ethereum continues to print new records too, as the combined overall value of the crypto market tops $2.9 trillion.

BTC is currently priced at $66,206 according to coinmarketcap, while second-most valuable crypto asset Ethereum is trading at $4,764.

Bitcoin buyers may come up against resistance around the $70k mark. The bitcoin price has been in consolidation mode for the past couple of weeks as it built up solid support at $60k.

Susannah Streeter, senior investment and markets analyst, Hargreaves Lansdown believes the run-up in the price is at least in part due to inflation concerns among investors.

“The recent surge in the crypto asset partly seems to have been caused by investors piling in, seeing it as a hedge against inflation,” Streeter said.

Investors “enticed” by bitcoin as inflation hedge

“Some appear to have been enticed by the argument that the huge monetary stimulus programmes unleashed by central bank is fuelling inflation which will see the value of money decrease over time, whereas Bitcoin has a fixed limit on the number of coins which can be created.”

However, Streeter highlights the risk to investors’ capital posed by regulatory clampdowns and the issues around the supposed non-sustainability of bitcoin mining operations.

“It’s a highly risky strategy given just how volatile the crypto currency is, amid other pressures on its valuation like clampdowns by authorities and even comments on social media. As Bitcoin increases in value, mining of the crypto asset also ramps up, which is still hugely energy intensive, despite some moves to power more proof of work using renewables, and it’s likely to attract more adverse headlines especially given the focus on soaring emissions during COP26.”

Hargreaves Lansdown is the UK’s largest direct to consumer investment platform. The platform did at one time allow its customers to buy the Grayscale Bitcoin Trust but that was before the UK’s Financial Conduct Authority moved to prevent UK retail investors accessing crypto collective investment products.

“The perturbations at work in the crypto stratosphere, given the gyrations of coins and tokens over recent months, means investing in Bitcoin is not for the faint hearted or for those with no money to lose,” says Streeter.

The Hargreaves analyst is sticking with her cautious take on crypto by echoing the warnings from the FCA, although crypto-friendly investors will likely dismiss those fears as the legacy system protecting its back.

“What is particularly worrying is that many investors get caught up the fear of missing out on rapid price gains and have borrowed money to invest in highly risky strategies. The UK financial watchdog has highlighted that 14% of UK investors in crypto assets have got into debt to buy in. This fresh rise in the coin, risks taking more vulnerable consumers for a rollercoaster ride.’’

More institutional investors entering crypto market

Mikhael Karkhalev, financial analyst, Currency.com, also cites the ending of cheap money policies as encouraging buyers. “Growing concerns around inflation and global rate hikes are clearly on investors’ minds. While we expect the US Federal Reserve to adopt a soft approach to monetary policy going into 2022, timing a potential hike is not a simple thing.

“Nevertheless, with central banks likely to begin raising rates and tapering its stimulus package, investors are looking for a store of value that is perhaps less susceptible to these changes. The growth in the capitalisation of the bitcoin crypto market has also aided confidence.”

Karkhalev also thinks that the broadening of the market is dampening volatility and that could help to attract more institutional players.

“With more participants in bitcoin, there is perhaps less volatility, which is in turn attracting more institutional investors and further promoting the stability of the popular cryptocurrency.”

Last week one of Australia’s big four banks Commonwealth Bank of Australia said it would offering access to crypto markets to its clients.

However, crypto is very much a risk asset and as such could yet be swept up in any future weakness in equity markets if and when bond yields start to rise when the interest rate lift off eventually comes in 2022-23.

Hargreaves Streeter concurs: “The US central bank, the Federal Reserve has also started gently reining in its bond purchase programme, and could well tighten more sharply in the months to come, potentially triggering a mini sell off, similar to how the financial markets would react if the drug of cheap money is withdrawn too quickly.”