A move by U.S. banks to hedge and invest in Bitcoin price even with 1% of their assets, could send this market skyrocketing
A large number of Wall Street investors have revealed that they are holding Bitcoin as a safe haven asset after considering the macro performance of the asset. However, Bitcoin accounts for only 1% – 3% of their portfolio. Moreover, with U.S. banks now able to hold cryptographic keys, they can store Bitcoin price, Ethereum, and other cryptocurrencies. This is an extremely positive thing for the crypto space.
When U.S. banks invest in Bitcoin price of only 1% of assets, the market will skyrocket
According to digital asset manager Charles Edwards, Bitcoin can double with one condition:
“If U.S. banks put just 1% of their assets into #Bitcoin as an investment, hedge or insurance.”
He made this comment about a chart from the Federal Reserve’s FRED board, which suggests that U.S. commercial banks own $ 20 trillion in assets. It was a theory, but Edwards said it was not difficult. You can even consult Grayscale’s Bitcoin accumulation catalog.
This positive sentiment comes as more and more investors expect engineering and macroeconomic industries to push Bitcoin to $ 20,000.
Bloomberg senior goods analyst Mike McGlone said in a June report:
“Bitcoin is mirroring the 2016 return to its previous peak. That was the last time supply was halved, and the third year after a significant peak… Fast forward four years and the second year after the almost 75% decline in 2018, Bitcoin will approach the record high of about $20,000 this year, in our view, if it follows 2016’s trend.”
Although Bitcoin investors will accept the move to $ 20,000, tens of billions of dollars going into Bitcoin will likely double the price. Whenever an investor brings 1 dollar into the Bitcoin market, the market capitalization of the asset will increase more than that dollar. This is called a “fiat amplifier” or “fiat multiplier,” and created a byproduct of the liquidity of this nascent market.
Renowned trader Alex Kruger commented on why this amplifier existed in early 2019:
“Invest a relatively large sum in a small asset (in $ terms), where additionally a significant fraction is not liquid (i.e., does not trade, sits off exchanges) => prices skyrocket. Fixed supply compounds the impact. Another way to look at this: Want to buy 1,000 BTC ($3.8 million) at the market on Coinbase? You need to cross the bid-ask spread. Doing so would result in approximately a 10% premium.”
Another way to look at this.
Want to buy 1,000 BTC ($3.8 million) at market on Coinbase? You need to cross the bid-ask spread. Doing so would result in approximately a 10% premium.
The larger the size invested, the higher price goes.https://t.co/fOeD8JHujr
— Alex Krüger (@krugermacro) January 3, 2019
There is debate about precisely what this amplifier is for Bitcoin. The calculations made in 2018 put the numbers anywhere from twice to 117 times, the latter being estimated by JP Morgan.
Assuming the low estimate is five times, injecting $ 200 billion into the Bitcoin market could make the market over $ 1 trillion. That means a price of over 60,000 dollars per dong. That means a ten-fold base case estimate will mean Bitcoin rises to more than $ 100,000.
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