Boosted by the rapid rise of Bitcoin and Ether, crypto markets are now valued at more than $3 trillion.
It was only this past August when crypto markets surpassed $2 trillion in value so the gain has been pretty spectacular.
Both Bitcoin and Ether have risen around 7% just this week with Bitcoin trading around $68,000 and Ether pushing $5,000.
Jodie M Gunzberg, Managing Director of CoinDesk Indexes – who was formerly a top Morgan Stanely executive, outlines the reasons for the rapid rise. She believes that Bitcoin and Ether are viewed as inflation hedges during a time of heightened inflation and more government spending that will certainly drive the value of the dollar lower along with an expectation that eventually, a Bitcoin ETF will emerge.
“Investing in BTC and ETH is a more direct and concentrated way for capturing inflation risk, meaning there is more inflation beta per dollar invested. Bitcoin also does well with inflation relative to other assets, even commodities that are also priced in dollars. It’s a great bang for your buck to use BTC and ETH for inflation protection,” says Gunzberg. “BTC and ETH are priced in dollars so their sensitivity to inflation is high. A 1% increase in inflation results in a 183% increase in return of ETH over three years. This is triple the inflation beta of bitcoin, which is already about 4.5x commodities.”
Regarding ETFs, Gunzber says that if approved assets will flow in thus driving price in a simple demand and supply event.
“It will also create a more costly role for investors holding the futures-based ETFs as the expectation of spot prices in the future rises. This will cause a bigger gap in the outperformance of spot ETFs vs futures ETFs as prices rise, which could either lead to asset flows out of the futures-based ETF and into the spot ETF, or could lead to investors going long the spot ETF and short the futures to gain from the roll yield in rising markets.”
Gaurav Dahake, CEO & co-founder Bitbns, also shared his perspective on the rapid rise in crypto markets value noting that crypto markets are growing at an exponential pace:
“While Bitcoin has quadrupled over the last year, it has grown by more than 50% in the last 2-3 months alone. This showcases the accelerated growth rate and implies that crypto is rapidly emerging from the shadows of an emerging asset class to becoming a mainstream investment option. Just a decade old Crypto and Bitcoin, in particular, is now being compared to traditional investment assets such as Gold which further authenticates cryptocurrency as the best performing asset class of the 21st century. Besides millennial and Gen Z investors, breeding a global social movement, there is a tremendous interest for digital assets which we are seeing almost every day – both in retail and institutional. The recent surge in meme coins such as Shibu Inu and Dogecoin also have rendered a spill-over impact further fueling the growth. Most importantly there has been a drastic shift in the narrative since the government has taken a positive stance and the latest being that the finance ministry now aiming to fast-track the modified cryptocurrency bill at the start of the winter session comes in as a huge encouragement for the entire industry.”
Since the “infrastructure” bill will become law, and there is a chance that Build Back Better may become the largest spending bill of all time, inflation may charge dramatically higher. Thus both retail and institutional money are seeking safe havens as government spending careens off the rails.