Kevin Kang

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 <ul>
 <li>With Gary Gensler helming the SEC, there will be greater regulatory clarity in 2022</li>
 <li>2022 could see a shift in the narrative around bitcoin mining and energy usage</li>
 </ul>
 
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2021 turned the tide for cryptocurrencies; a major influx of investment including household names such as Apple’s Tim Cook and Tesla’s Elon Musk, plus former Twitter CEO Jack Dorsey leaving the multi-billion-dollar company he founded to become a ‘missionary’ for Bitcoin with his new brainchild <a href="https://cms.blockworks.co/jack-dorseys-square-to-change-its-name-to-block/" target="_blank" rel="noreferrer noopener">Block</a> (formerly Square).



Bitcoin, ethereum and many other cryptocurrencies hit all-time highs during the year, enticing even risk-averse institutional money-managers to invest, and fuelling the crypto buzz amongst retail investors. November 2021 alone saw $4 billion entering the market.



As an exciting 2022 looms, here are the major questions, issues and likely developments in BKCoin Capital’s crystal ball.



<h3 class="wp-block-heading">ETFs&nbsp;</h3>



In October 2021, the first bitcoin futures ETF went live in the US after winning regulatory approval from the SEC. The ProShares Bitcoin Strategy ETF (<a href="https://cms.blockworks.co/bito-on-track-to-be-first-fund-in-history-to-hit-1b-in-aum-in-two-days/" target="_blank" rel="noreferrer noopener">BITO</a>) listed on the NYSE, giving the crypto industry its long-awaited wish. It launched with stunning success, surpassing $1 billion in trading volumes on its first day of trading and becoming the second biggest ETF launch ever, by volume.



A physical bitcoin ETF has long been an asset class watershed. It provides a more conventional means of investment, enabling investors to buy directly from traditional investment brokerages.



In November, the SEC rejected global investment manager VanEck’s filing for a first-of-its-kind bitcoin ETF, which could have supercharged bitcoin’s price. The SEC cited risks of manipulation and fraud within the market. However, with more regulation expected next year, don’t be surprised to see the SEC’s thinking shift. 2022 could be the year we finally see physical bitcoin ETF approval and Ethereum ETFs.&nbsp;



<h3 class="wp-block-heading">More regulatory dialog</h3>



With Gary Gensler helming the US Securities and Exchange Commission (SEC), there will be greater regulatory clarity in 2022. The IRS is also naturally motivated to introduce regulation — for US citizens to file taxes correctly — so the conversation is moving in a promising direction. Gensler also understands the importance of cryptocurrency as an innovative, new technology — one to be embraced, not shut down — having previously warned about risks to investors without sufficient regulation.&nbsp;



As a rapidly maturing asset class, cryptocurrencies need clear and pro-innovation regulatory guidelines for companies and investors. Regulatory fog does not benefit the industry. Eliminating these points of friction by sensible regulation is a prerequisite to becoming an integral part of economies worldwide and facilitating cryptocurrencies’ promises of transparency and free exchange.



<h3 class="wp-block-heading">Sustainable mining</h3>



The environmental impact of the cryptocurrency industry has been a hot topic in 2021, specifically energy usage in mining bitcoin. 2022 could see a shift in the narrative.



China’s <a href="https://cms.blockworks.co/china-mining-exodus-seen-as-positive-for-bitcoin/" target="_blank" rel="noreferrer noopener">ban</a> on cryptocurrency mining in May triggered a mass exodus of miners, and a race to acquire the associated machinery. The radical decision was motivated by other factors and the former home to 75% of global bitcoin mining capacity is clearly conscious of its carbon footprint and under pressure to reduce it.



While much remains to be done to mitigate the environmental impact, companies such as Riot Blockchain have been identifying eco-friendly projects with large energy capacities and a cost-efficient rate for crypto mining. There is an ongoing effort within the industry and it will be interesting to see how this develops in 2022.&nbsp;



Bitcoin&#8217;s hash rate has fully recovered post its short-term retreat after China’s mining ban. US miners have taken advantage and the country now has the world’s highest hash rate. With ESG investment front of mind, more investment will be made in North American miners.



<h3 class="wp-block-heading">The domino effect</h3>



After El Salvador made Bitcoin legal tender, 2022 will see more countries follow suit.&nbsp;



President Bukele’s decision to make El Salvador the world’s first country to officially recognize bitcoin as legal tender was powerful. It has the potential to empower people who are either under-banked or living in nations experiencing (hyper)inflation.



The pioneering move has already had — and will continue to have — implications in the emerging economies of Latin and Central America. Brazil, Panama, Paraguay and Argentina are four countries worth tracking in 2022. If they follow <a href="https://cms.blockworks.co/el-salvador-went-all-in-on-bitcoin-will-other-countries-follow/" target="_blank" rel="noreferrer noopener">El Salvador’s lead</a>, it could send major ripples through the financial markets and catalyze more institutional adoption.



Myanmar’s shadow government, the National Unity Government (NUG), has also declared tether as its official currency. While the NUG’s formal control in the country is still in flux given its exile after this year’s military coup, the European Union still recognizes the NUG as the country’s sole government.&nbsp;



<h3 class="wp-block-heading">A positive direction</h3>



With cryptocurrencies running from one all-time high to the next, 2021 also saw the cryptocurrency industry and market mature considerably.



While obstacles remain, the asset class has become more sophisticated, widely accepted and accessible. Prepare for more institutional investment, regulatory dialogue and the first-of-its-kind bitcoin ETF.&nbsp;



In a world of uncertainty, one thing is for sure — 2022 will be another exciting year with interest and the influx of capital only heading in one (positive) direction.

2022: The Year Crypto Comes of Age

<div id="highlights-block_6132305805109" class="highlights">
 <ul>
 <li>Even though the threat of tougher regulations and continued uncertainty over crypto rules in the US Infrastructure Bill remains a risk to the crypto market outlook, sentiment continues to warm</li>
 <li>Encouragingly, Gensler understands that cryptocurrency is a new technology that cannot be ignored</li>
 </ul>
 
</div>



Market sentiment is the collective attitude of investors towards a particular financial asset or market. It is a concept applicable to all financial markets, including cryptocurrencies.&nbsp;



Like every financial asset, cryptocurrency prices are intrinsically linked to market supply and demand. Increasingly, we are seeing social media, public opinion and print media having an influential impact on these market forces, ultimately causing prices to rise or fall on the latest market sentiment.



Take Dogecoin, for example. When the cryptocurrency, created by software engineers Billy Markus and Jackson Palmer, went on a bull run in January 2021, the consensus was it was heavily influenced by social media.&nbsp;



Retail investors bought dogecoin without fully comprehending its tokenomics, goals or that it was originally created as a joke. At the time, investors were swayed by emotion-driven market sentiment, in this case a sense of FOMO. Additionally, influential individuals, such as Elon Musk, championed dogecoin as a legitimate investment prospect via Twitter.



On August 3rd, the chair of the US Securities and Exchange Commission (SEC), Gary Gensler, called for full regulation of digital assets – in line with stocks, bonds and commodity-related trading instruments.



<blockquote class="wp-block-quote is-layout-flow wp-block-quote-is-layout-flow">Gensler outlined his desire for Congress to afford the SEC more authority to police cryptocurrency trading, lending and platforms. He described crypto markets as the “Wild West” claiming the asset class is “rife with fraud, scams, and abuse in certain applications”. He advocated “additional congressional authorities to prevent transactions, products and platforms from falling between regulatory cracks.”</blockquote>



One might assume Gensler’s speech, calling for increased control over cryptocurrency exchanges and questioning its potential to act as a substitute to the fiat currency, would send prices spiralling.&nbsp;



However, on August 4th, the market brushed off the news and Bitcoin bounced back towards $39,000, with traders and investors seemingly responding to short-term oversold conditions. Similarly, Ether, the cryptocurrency of the Ethereum network, experienced an even greater rise.



Encouragingly, <a href="https://cms.blockworks.co/secs-gensler-crypto-needs-regulation-to-survive/" target="_blank" rel="noreferrer noopener">Gensler</a> understands that cryptocurrency is a new technology that cannot be ignored. His admission that the lack of crypto regulation cannot be a good thing for the advancement of the technology illustrates that he is pro-innovation and provides a less bearish, and more promising, outlook.



Over the past three weeks, sentiment in the market seems to have completely flipped. Despite Gensler’s speech – described by Katherine Wu, a crypto legal commentator, as “the most aggressive and hostile stance re U.S. crypto regulation to date from the SEC” – momentum since the end of July has not dampened.



On July 30th, the <a href="https://alternative.me/crypto/fear-and-greed-index/" target="_blank" rel="noreferrer noopener">Bitcoin Fear and Greed Index</a> — which measures investor sentiment — finally returned to ‘neutral’ after being stuck between ‘fear’ and ‘extreme fear’ since mid-May. The values of this index are determined by five factors — volatility, trade volumes, social media, surveys and dominance – and provide insight into market sentiment. This offered an early indication of the current bounce we are witnessing across crypto markets.



According to CoinMarketCap’s price index, Bitcoin reached $46,589 on Monday 16th August — its highest level since 18th May — having traded below $30,000 in recent weeks. Bitcoin broke above the 200-day moving average, a long-term determinant of market health.&nbsp;



This bounce stimulated a wider recovery in crypto markets, with other currencies in the top 20 by market capitalization like Binance Coin, Cardano, XRP, Litecoin and uniswap experiencing price rises.



Most notably, ether gained as much as 3.1% to $3,191 on Sunday 8th August – gaining for the fifth consecutive day. Also, Solana (SOL) and Terra (LUNA) continued to hit all-time highs this week, after hitting the lows merely three weeks prior. This shows how sentiment in the market can shift very quickly and no investor can fight the trend in the market.



With Bitcoin and Ether both reaching their highest levels in more than two months and signs of a market-wide comeback, it is evident that momentum is building once more. There seems to have been a clear shift in market sentiment compared to May and June.&nbsp;



Cryptocurrencies markets are invigorated again, following the pull back from record highs and subsequent sluggishness due to global regulatory crackdown and debate around Bitcoin’s environmental impact and energy consumption levels.



Even though the threat of tougher regulations and continued uncertainty over crypto rules in the US Infrastructure Bill remains a risk to the crypto market outlook, sentiment continues to warm.&nbsp;



It is no secret that market sentiment drives cryptocurrencies, and other asset classes are far from devoid in volatility themselves. However, it is heartening how resilient crypto assets are generally. The path to crypto being mainstream will inevitably be paved with peaks and troughs, but medium-term resilience will be the litmus test.



Catch up on all of Kevin Kang&#8217;s Op-Eds <a href="https://cms.blockworks.co/author/kevinkang/" target="_blank" rel="noreferrer noopener">here</a>.

Crypto Market Is Showing Its Resilience Despite Troughs

<div id="highlights-block_60ca5cf689f7e" class="highlights">
 <ul>
 <li>We’re still in the very early innings of cryptocurrency adoption, and traditional allocators and investors are not ignoring this asset class anymore</li>
 <li>Holding bitcoin on the balance sheet will be no different from holding euros or Mexican pesos</li>
 </ul>
 
</div>



It’s been a fascinating month between the market getting chopped in half from all the FUD news coming out at the same time as a lot of bullish news. I’ve never seen any asset class where people are as enthused and bullish as they are after the market pulls back 50%.



Are we all nuts or are we all onto something?



Check out this list of just some of the most recent bullish news that came out last week:



<ul class="wp-block-list"><li>El Salvador officially declared&nbsp;bitcoin <a href="https://cms.blockworks.co/el-salvador-approves-bitcoin-as-legal-tender-in-supermajority/" target="_blank" rel="noreferrer noopener">legal tender</a> and plans to offer facilities to mine bitcoin with 100% renewable energy.</li><li>France, Switzerland and The Bank of International Settlements are launching a <a href="https://www.banque-france.fr/en/communique-de-presse/banque-de-france-swiss-national-bank-and-bank-international-settlements-innovation-hub-collaborate" target="_blank" rel="noreferrer noopener">trial</a> on how banks can handle Central Bank Digital Currencies&nbsp; across borders.</li><li>India is moving to classifying bitcoin as an asset class.</li><li>The World Economic Forum issued a <a href="https://www.weforum.org/whitepapers/decentralized-finance-defi-policy-maker-toolkit" target="_blank" rel="noreferrer noopener">toolkit</a> on how policy makers should treat decentralized finance (DeFi).</li><li>MicroStrategy’s junk bond <a href="https://cms.blockworks.co/microstrategy-is-selling-debt-to-buy-more-bitcoin-heres-what-that-means/" target="_blank" rel="noreferrer noopener">offering</a> was oversubscribed, and the firm offered up to $1 billion of securities to potentially buy more bitcoin.</li><li>Interactive Brokers <a href="https://cms.blockworks.co/interactive-brokers-reveals-plan-to-offer-crypto-trading/" target="_blank" rel="noreferrer noopener">plans</a> to offer digital asset trading by the end of the summer.</li><li>Victory Capital, with $157 billion in AUM, announced <a href="https://cms.blockworks.co/victory-capital-joins-nasdaq-and-hashdex-to-launch-private-funds-for-crypto-investors/" target="_blank" rel="noreferrer noopener">plans</a> to enter the cryptocurrency market.</li><li>Carl Icahn is looking to get involved in the cryptocurrency space in a ‘relatively big way.’</li><li>The Biden administration is proposing a $6 trillion budget for the 2022 fiscal year beginning October 1. It’s set to be financed through deficit financing and raising taxes.</li></ul>



That was a long list and I’m out of breath just from typing it, however there is so much fear in the market that all these great bullish headlines seem to be ignored.



<h3 class="wp-block-heading">El Salvador: bitcoin’s savior?</h3>



Let’s start with the El Salvador news. Despite the country’s nominal GDP of only $25 billion, it has bigger global implications. Some of the emerging countries that have been decimated by inflation have already been using US dollars or cryptocurrencies in the black market as a counterbalance to their official, inflated currencies.



However, with 25% of all M2 money supply having been printed this past year alone, it’s inevitable the US dollar will devalue, and we are already seeing inflation showing up in consumer prices. As bitcoin becomes legal tender in one country with more to follow in Latin America, the digital currency will have to be recognized as money under the US commercial law, which means banks will have to treat bitcoin like any other foreign currency.



As a result, the demand for bitcoin or other virtual currency in emerging markets could increase in addition to corporate treasurers potentially buying bitcoin without facing as much backlash. Holding bitcoin on the balance sheet will be no different from holding euros or Mexican pesos.



<h3 class="wp-block-heading">Digital assets are here to stay</h3>



With the Bank of International Settlements and World Economic Forum issuing guidance on how to handle CBDCs, it seems as though the global elites don’t expect cryptocurrencies to go away. They wouldn’t issue guidelines if they thought digital assets were just a fad.



Separately, India looking at classifying bitcoin as an asset class seems to squash some of the FUD that’s been coming out of India as of late. Plus the news about MicroStrategy, Interactive Brokers and Carl Icahn are all bullish because they show that more money is flowing into this new asset class.



They also show how we’re still in the very early innings of cryptocurrency adoption, and traditional allocators and investors are not ignoring this asset class anymore.&nbsp;



On the macro side, the S&amp;P 500 hit an all-time high at the same time the Federal Reserve’s balance sheet hit an all-time high of over $8 trillion. Also, the Biden administration is proposing a $6 trillion budget for the next fiscal year as well as an $1 trillion infrastructure bill, which came down from the $7 trillion initially proposed.&nbsp;



This is an unprecedented amount of money printing and a lot of money being sloshed around in the market. We’re seeing a record amount of SPAC deals in 2021 as well as all the private companies raising capital at eye-watering valuations with no problem.



With bitcoin’s capped supply at 21 million as well as Ethereum’s EIP-1559 expected to go live next month, which will evolve Ethereum as a deflationary asset, I believe the writing is on the wall when it comes to what will hold value over the coming decade. And it definitely isn’t fiat.



I’ll leave you with a final click-bait headline-maker: ‘The Fed owns Bitcoin on Its Balance Sheet.’ The Fed is the fourth-biggest owner of the SPDR Bloomberg Barclays High Yield Bond ETF (JNK) and that ETF holds MicroStrategy’s newly issued junk bond so technically, the Fed holds bitcoin on its balance sheet.



What an interesting time to be alive, don’t you think?

Crypto: Are We All Nuts or Onto Something?

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<div id="highlights-block_60a2925ad9fc3" class="highlights">
 <ul>
 <li>Since Elon Musk’s SNL appearance on Saturday 8th May, DOGE has been down approximately 48%</li>
 <li>When Musk tweeted that Tesla would stop accepting bitcoin as a payment due to environmental concerns, bitcoin’s price dropped 15% on the day, and took most of the cryptocurrency markets with it</li>
 </ul>
 
</div>



Everyone saw the inflation coming since the Fed started printing money last March as if the US dollar was Monopoly money.&nbsp; Then, when the CPI data came out on May 12 showing the 4.2% increase year over year, the biggest jump since 2010, the equities markets took a big hit.



Some analysts are saying the jump in inflation is temporary as the annual inflation measure is the comparison from last year during the pandemic.&nbsp;



The Producer Price Index rose even more at 6.2%, which is also the largest increase since 2010 versus 3.8% estimates. All the media outlets talked about how surprising those numbers were, but was it really surprising for anyone in the markets?&nbsp;



Whenever I want to get a better sense of what is going on with the economy outside my New York City bubble, I call my childhood friends who are contractors buying raw materials and hiring workers. They have been talking about how they cannot get hold of raw materials fast enough due to a supply shortage, hence the skyrocketing prices.&nbsp;



They have also been talking about how they cannot hire workers fast enough and how used trucks cost more than brand new trucks due to a three to six month wait time.&nbsp;



<h3 class="wp-block-heading">Who let the dogs out?</h3>



Now, let us look at Dogecoin (DOGE). Dogecoin has rallied almost 7,000% year-to-date, which is nothing short of impressive. Its 1-year return is over 15,500%. That is nothing to be laughed at despite the token being originally created out of a joke.&nbsp;



Elon Musk has been promoting Dogecoin for quite some time and his followers have followed to pump the token. When retail investors saw its return profile, lots of Robinhood-like traders jumped in, pushing the price even higher.



Then, when it was announced that Elon Musk would appear on Saturday Night Live on May 8, DOGE pumped even higher with speculation growing as to whether it might hit $1. It came close at around $0.74 before his appearance on SNL. Then it crashed.



Since Musk’s SNL appearance on DOGE has been down approximately 48%. While many have made money on DOGE, others have been hurt.



Some people felt left out by DOGE’s rally and subsequently decided to pump another meme token, Shiba Inu (SHIB). Its price soared over 10,000% over the last 30 days and it is up 33.5 million percent in the last six months. Yes, over 33 million percent. However, it is down 50% in the last three days following reports that Vitalik <a href="https://www.celebritynetworth.com/articles/billionaire-news/omg-vitalik-buterin-is-dumping-all-his-dog-coins-we-speak-and-donating-the-proceeds/" target="_blank" rel="noreferrer noopener">sold</a> the tokens. Some people are becoming millionaires by day and losing their homes by night.



<h3 class="wp-block-heading">What about bitcoin?&nbsp;</h3>



Bitcoin has been range-bound for the last three months, while ethereum took its spotlight and more than doubled in the last month and a half. Bitcoin is the new store of value that has been stealing institutional flows from gold and should trade as an inflation hedge, right?&nbsp;



Wrong. Bitcoin was not shielded from last week’s market turmoil due to the higher-than-expected inflation number. Then, after the equity market closed, Musk <a href="https://cms.blockworks.co/crypto-industry-skeptical-on-musks-bitcoin-u-turn/" target="_blank" rel="noreferrer noopener">tweeted</a> that Tesla would stop accepting bitcoin as a payment due to environmental concerns, pushing down Bitcoin’s price 15% on the day, and took most of the cryptocurrency markets with it.&nbsp;



Is this the same guy that just promoted Dogecoin on a national television?&nbsp;



<h3 class="wp-block-heading">Wasting energy</h3>



Dogecoin uses the same proof of work mechanism as bitcoin and is just as energy intensive. Hasn’t his company, SpaceX, burned more <a href="https://techstartups.com/2021/01/23/elon-musks-spacex-now-wants-drill-natural-gas-texas-fossil-fuels-really-dead/" target="_blank" rel="noreferrer noopener">fossil fuels</a> on their exploding rockets than bitcoin miners ever could? But what do I know, I am no <a href="https://www.youtube.com/watch?v=1GAKOLOnfV4" target="_blank" rel="noreferrer noopener">rocket man</a>.



Bitcoin’s energy consumption doesn’t equate to carbon emissions. Different reports suggest that 40-70% of Bitcoin’s energy consumption is carbon neutral. Many <a href="https://cms.blockworks.co/the-investors-guide-to-bitcoin-the-environment/" target="_blank" rel="noreferrer noopener">reports</a> refute the idea that bitcoin is a big contributor to carbon emissions. Tesla stock is down almost 40% since January. There seems to be more to his tweets than first meets the eye.



<h3 class="wp-block-heading">Market impacts</h3>



There are inefficiencies all over the market — whether that be equities, fixed income, or cryptocurrencies. One single tweet from Trump could bring a stock down to its knees in a matter of minutes. Now, we are seeing one person’s tweet disproportionately impacting the whole cryptocurrency market.&nbsp;



Active market-neutral strategies are beneficial in times like this, which is our firm’s flagship strategy. A few days ago, you could get paid to buy protection in the options market. Now, everyone is rushing to buy protection.&nbsp;



It always seems to be when there’s nothing but euphoria in the market, something smacks you in the face and takes the market down.



<h3 class="wp-block-heading">Pullbacks as entry points</h3>



Market-neutral strategies outperform when there’s more volatility in the market, especially when there’s fear in the market. We are witnessing increasing interest from traditional allocators, including big macro hedge funds, in our market-neutral strategy that has outperformed the market whenever the market is down.



Bitcoin’s narrative hasn’t changed, and more institutional adoption is happening before our eyes. All big bulge bracket banks are now offering or looking to offer digital assets to their clients. More corporations are putting bitcoin onto their <a href="https://cms.blockworks.co/game-giant-nexon-puts-100m-bitcoin-on-balance-sheet/" target="_blank" rel="noreferrer noopener">balance sheet</a> to hedge against inflation and potential devaluation of the US dollar.&nbsp;



We are still in the very early innings of institutional adoption. I believe pullbacks like these present a great entry points for investors.

When One Man’s Tweets Move Markets

<div id="highlights-block_604bc5f11df4e" class="highlights">
 <ul>
 <li>Coronavirus relief package could represent major milestone for bitcoin</li>
 <li>Given that crypto investment and bitcoin price rose considerably in the face of the last stimulus package, a repeat of that trend is possible</li>
 </ul>
 
</div>



Yesterday, President Joe Biden’s $1.9 trillion coronavirus relief package received its final backing from the House of Representatives. This congressional approval for a massive fiscal <a href="https://www.cnet.com/personal-finance/the-stimulus-bill-doesnt-just-have-1-check-it-has-3-heres-every-way-you-get-money/">stimulus</a> could represent a major milestone for bitcoin.&nbsp;



We have already seen two rounds of federal coronavirus relief and stimulus cheques in the US. The first, signed off in March 2020 by Donald Trump, saw tax-paying Americans receive $1,200 and sparked a significant surge in cryptocurrency investment. Those who invested the entirety of this cheque into bitcoin in April last year would now be sitting on over $10,000 BTC.&nbsp;



<h3 class="wp-block-heading">Repeating a trend</h3>



Biden’s package will see tax-paying Americans receive up to $1,400. Given the wave of crypto investment and the price of bitcoin rose considerably in the face of the last stimulus package, we expect to see a repeat of that trend this time around.



Over the past two weeks, the crypto market has been highly correlated to the equity market with rising yields and rotational out of growth stocks into value stocks. However, the crypto market has held up relatively well following Federal Reserve chairman Jerome <a href="https://cms.blockworks.co/fed-meeting-preview-will-powell-take-ecbs-lead/">Powell’s</a> comments last Thursday which put high growth stocks into a downward spiral.



Speaking at the Wall Street Journal jobs summit, Powell gave little indication that the Fed has any dovish plans or is willing to intervene in the recent government bond sell-off. In the US, futures for the benchmark S&amp;P 500 stock index dropped by 0.44%; Dow Jones futures by 0.46% and Nasdaq 100 by 0.49%. Asian and European stocks also fell sharply.



<h3 class="wp-block-heading">Regaining its standing</h3>



The crypto markets decoupled with the equity market over the weekend and into the start of this week; and with the funding rates reset – meaning there is not much leverage in the market – the crypto market was ready for a leg higher.



The recent equities rally has helped digital assets regain its standing. Bitcoin is currently sitting at around $57,000 and Ethereum at $1,850. Many of the public companies with bitcoin exposure were up on Tuesday – for example, Tesla was up by 20%, and <a href="https://cms.blockworks.co/silvergates-payment-pipes-fuel-the-digital-assets-revolution/">Silvergate</a>, Marathon Digital Holdings, Overstock, Microstrategy and Nvidia were all up too.



With bitcoin reclaiming the $1 trillion market cap, we expect to see a leg higher once it achieves stability and passes the $58,000 resistance. With another $2 trillion infrastructure bill on the horizon, the environment continues to be bullish for bitcoin and the wider markets.&nbsp;



In short, Biden’s stimulus package is welcome news and the outlook for bitcoin and crypto markets looks as promising as ever.

What the $1.9T Stimulus Means for Crypto Markets

<div id="highlights-block_600082feb225b" class="highlights">
 <ul>
 <li>Since Bitcoin crossed the psychological rubicon of $20,000, institutional interest has flourished</li>
 <li>In the past 3 weeks, BKC Capital has had more inbound institutional interest than in all of 2020</li>
 <li>BKCapital was up +71.8% in 2020 as a market-neutral strategy vs. an avg public equity market neutral performance of -1.12%</li>
 </ul>
 
</div>



2020 brought along with it one of the worst pandemics in human history. Nobody had any choice but to adapt to the new normal of wearing masks, social distancing and working remotely – if you were fortunate enough to stay employed.



We saw everything from unemployment skyrocketing to 15% in April, to extensive wait lines at the local food banks across the nation. Signs like these hint that the economic damage from COVID-19 will linger on longer than we initially expected.&nbsp;



On the flipside, cryptocurrency saw its rhetoric drastically change for the better amongst institutional investors.&nbsp; After a brief setback known as Black Friday in March saw Bitcoin dive nearly 50%, Bitcoin not only recovered but roared back nearly 140% prior to the “Halving” in early May.



That was only the beginning, however. Bitcoin continued to show its resilience on the back of ‘unlimited money printing’ from central banks around the world. M2 money supply grew by over $4 trillion in the US alone. Institutional investors started acknowledging the power of decentralized currency given its finite supply.



By the end of 2020, legendary macro investors including Paul Tudor Jones and Stanley Druckenmiller began recommending an allocation to cryptocurrency as an asset class.&nbsp; More traditional financial service institutions such as Blackrock, JP Morgan and AllianceBernstein (where I began my career), soon followed.



After crossing a psychologically significant $20,000 mark on December 15, the price of Bitcoin has nearly doubled in a mere 3-week period. Its price jumped 50% to $30,000 to ring in the new year and it has crossed $40,000 in a week thereafter.



Since breaking its previous all-time high price on December 15, our firm BKCoin Capital has received more inbound calls these past three weeks than almost all of 2020 combined. Given this rapid increase in interest, a few important questions come to mind.



Why are the investors rushing into this asset class after hitting all-time highs? What happened in the last 6 months to change investors minds after nearly a decade of dislike and discomfort?



We’ve had inbound calls from traditional “funds of funds” to family &amp; friends asking how to allocate this past month.&nbsp; With billions of dollars pouring into Bitcoin this past month and with no signs of slowing down, we can feel that the wall of institutional capital flowing into this asset class has just started.&nbsp;



What Does a Growing Ecosystem Mean for Investors?



As this asset class matures, investors must decide on a strategy for gaining exposure.



Is simply buying and holding Bitcoin sufficient? The success of passive funds like Grayscale, 3iQ and Bitwise suggest there’s demand for buy and hold, but others will undoubtedly search out more sophisticated active strategies.



At BKCoin Capital, we have been running market-neutral strategies for over two years where investors can add exposure to digital assets with much less volatility using derivatives to hedge while our Bitcoin-denominated strategies (with the objective to accumulate more Bitcoin) have gained substantial traction this past year. Most investors understand the benefits of adding a digital asset exposure into portfolios but can’t stomach its volatility that comes with the nascent asset class. Although Bitcoin doesn’t pay any dividends, if investors can grow their Bitcoin holdings through active strategies outside of simply buying and holding, why wouldn’t they?&nbsp;



2021 will be a very interesting time for everyone involved in digital assets. Regulators are increasingly demonstrating understanding and providing clarity, allowing more institutional investors to enter into this space.



While we are still in the very early innings, we will see digital assets grow into an investment vehicle that portfolio managers can no longer ignore. I hope the growth of this space benefits not only institutional investors but also people around the world who have been left behind due to central banks’ irresponsible monetary policy.



What an exciting time to be alive!