Bitcoin faces regulatory oversight after record-breaking rally

It has been a difficult year in every way. But for Bitcoin, 2020 was a great time.

The cryptocurrency nearly quadrupled, surpassing $ 20,000 for the first time as it hit record after record. The diehards hailed it as an inflation hedge in an era of unprecedented central bank generosity. Wall Street veterans Paul Tudor Jones and Stanley Druckenmiller blessed it as an alternate asset, adding to the rally. And companies like MicroStrategy Inc. and Square Inc. moved cash reserves to cryptocurrencies in search of better returns than near-zero interest rates.

While none of those reasons for buying Bitcoin are consistent with its origins as an alternative to fiat currencies, they do point to a growing adoption of crypto as its own asset class. And that has led the zealous community to make another round of victory in their quest for legitimacy.

“What’s happening now – and faster than anyone could ever imagine – is that Bitcoin is moving from a marginal esoteric asset to the mainstream,” said Matt Hougan, Bitwise Asset Management’s chief investment officer. “If it goes mainstream, there will just have to be so much money on the sidelines and take a position that makes me very optimistic for 2021.”

But now that Bitcoin is attracting more attention, it could also receive closer scrutiny from regulators, said Guy Hirsch, US general manager at the online trading platform eToro. “Despite this rapid rise, there are some thunderclouds on the horizon,” he said, including the precipitation of several last-minute actions by the outgoing Trump administration, among others.

Devotees say the pandemic-ravaged year proved in some ways the perfect environment for the digital currency. Warnings of rampant money pressure from global central banks – some of which have begun to reveal their own interests in digital assets – sparked fears for ultimate inflation, while interest rates fell to lows. That prompts some investors to chase returns and hedge with cryptocurrencies, pushing the price above $ 28,000 from about $ 7,200 in early January.

Predicting where it is going is a tough exercise. Many left the coin for dead after the 2017 rally resulted in a crash the following year, a period sometimes referred to as the ‘crypto winter. But it is up more than 300% in 2020 and many investors say it could continue to win next year. A Deutsche Bank survey found that a majority see 2021 finish higher, with 41% of participants expecting a target between $ 20,000- $ 49,999 and 12% who see it exceed $ 100,000, said Jim Reid, a strategist at the company.

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What else is on the radar? For Meltem Demirors, chief strategy officer at Digital Asset Manager CoinShares, there are some concerns about what the incoming Joe Biden administration could mean for the crypto space.

“Overall, I think we’ve had problems with the Dems – they prefer more regulation, more overview,” said Demirors. “I’m a little concerned about where things are heading,” especially around antitrust cases and an erosion of internet privacy. Still, the industry has some allies, Demirors said, including Patrick McHenry of North Carolina and Warren Davidson of Ohio, who she says are advocates for preserving consumers’ financial privacy.

In the future, many strategists and investors say, the industry could see more scrutiny and tighter regulation with Biden in the White House.

Much depends, of course, on who holds key positions within the administration. Janet Yellen, who has been nominated as Finance Minister in Biden’s administration, in recent years has warned investors about Bitcoin, say it was a “highly speculative asset” and “not a stable store of value.” A representative did not immediately return a request for comment.