Bitcoin hyperbole is back – and better than ever. As the cryptocurrency rallied by nearly 50% in December – before starting 2021 by touching a new record above $34,000 – an informal year-end competition developed to see who could make the most eye-catching prediction about how high the price could go.
Guggenheim Investments chief investment officer Scott Minerd was an early frontrunner in the contest when he went on Bloomberg TV to say that his firm’s fundamental analysis showed that bitcoin should be worth $400,000.
This was an excellent opening gambit. There are plenty of crypto bros who post clips supposedly shot on their tropical island lairs predicting that bitcoin should trade at $1 million, or $10 million.
Guggenheim, by contrast, is a large investor with more than $295 billion of assets under management and a track record of adopting new financial structures that makes it one of the most important fee payers to Wall Street banks.
Minerd is a member of the Federal Reserve Bank of New York’s investor advisory committee on financial markets, an adviser to the Organization for Economic Cooperation and Development, and a fixture of World Economic Forum meetings in the good old days when Davos in January was still a thing.
Minerd’s bitcoin analysis understandably drew a lot of attention and prompted a wave of other price calls – some higher, some lower.
Media king
There is only one king of markets media at the moment, however.
On December 20, the day before Tesla joined the S&P500 index to cap a year-to-date rise of over 700% in its stock, founder Elon Musk waded into the bitcoin debate on social media.
Lesser minds might have expressed a clear view on the cryptocurrency outlook or made a bitcoin price call based on ‘fundamental analysis’.
Musk instead delivered a series of comments that were, well, cryptic.
First, he engaged in a Twitter exchange with Michael Saylor, a bitcoin evangelist who suggested that Tesla should convert its balance sheet from dollars to the digital currency.
“Other firms on the S&P500 would follow your lead, and in time it would grow to become a $1 trillion favour,” said Saylor, indicating that Tesla could gain a further boost on top of the roughly 14,000% rise since it went public in 2010 that has now taken its market capitalization to over $650 billion.
“Are such large transactions even possible?” Musk asked, raising the possibility of a bitcoin endorsement by a role model to retail investors around the world.
“Yes. I have purchased over $1.3 billion in bitcoin in past months and would be happy to share my playbook with you offline,” Saylor replied.
Bitcoin is almost as bs as fiat money
Elon Musk
Musk also put out a tweet saying that “bitcoin is almost as bs as fiat money” and changed his title on Twitter to “former CEO of Dogecoin”, a little used cryptocurrency that was named after an internet meme of a dog.
Musk’s trolling and misdirection had less effect than his hint that he was seriously considering use of bitcoin for substantial trades, however, and in a December 21 tweet Saylor clarified his own holding with a claim that he owned 70,470 bitcoins purchased for $1.125 billion at an average price of $15,964 each in his listed software company MicroStrategy.
Watershed
The latest upward lurch in the dollar value of bitcoin bears many similarities to previous rallies. Since its launch in 2009 bitcoin has seen four bear markets when it lost close to half of its value in a sustained downward move, including a slump from the December 2017 level of almost $20,000 that was the high point until late in 2020.
But the current rally is being accompanied by tangible steps towards integration of bitcoin into the broader capital markets that indicate that this time really might be different – even if wild price swings and unreliable promotional gimmicks turn out to be a permanent cryptocurrency feature, not a bug.
An IPO for Coinbase, the largest US cryptocurrency exchange, could prove to be a watershed for the market.
Coinbase is still outranked by Binance for global cryptocurrency transaction volumes, but it is playing nicely with regulators as it prepares for a public listing.
This presents a sharp contrast with Binance, which still seems to embrace the outlaw spirit of the early days of crypto trading.
Coinbase Global said on December 17 that it had confidentially submitted a draft registration statement with the Securities and Exchange Commission in the basic first step before a public listing on a US exchange.
Coinbase has reportedly mandated Goldman Sachs to explore an IPO, though both firms decline to comment.
A successful Goldman-led IPO for Coinbase in 2021 would go a long way towards encouraging broader adoption of traditional capital market structures for trading in bitcoin and other cryptocurrencies.
A deal could potentially give Goldman a head start as an underwriter and adviser in crypto deal making, and resolve what appears to have been a simmering debate within the bank for years about the risks and rewards of embracing the sector.
Click bait
Bitcoin and Goldman are two of the best click-bait key words to gather online attention, as any editor, marketer or social media maestro knows.
So, a Coinbase IPO prospectus certainly would not lack attention.
A poorly structured prospectus can wreak havoc with an existing private-market valuation as well as ruling out a successful public listing, however, as the debacle that was WeWork’s attempted IPO demonstrated.
Coinbase was valued at close to $8 billion after a private fundraising round in 2018, according to Crunchbase, and features reputable Silicon Valley investors such as Andreessen Horowitz among its owners. It is based in San Francisco and its chief executive and co-founder Brian Armstrong is an American who has been keen to project an air of probity for Coinbase.
The firm has repeatedly tangled with the Internal Revenue Service over access to its account holders’ information, however, and broader regulatory treatment of crypto initiatives remains fluid.
The WeWork experience also highlights that engaging blue-chip advisers such as Goldman Sachs and JPMorgan is no guarantee that a novel business model will make a smooth entry to the public capital markets.
The sheer number of reputable firms and individual investors who are buying into either the price appreciation or inflation protection potential of bitcoin is nevertheless likely to boost lower-profile moves to bring capital market practices to cryptocurrency trading.
Promotions
Long established investors such as Paul Tudor Jones and Stanley Druckenmiller are buying bitcoin, while Fidelity offers a bitcoin custody service that is being personally promoted by its chief executive Abby Johnson, for example.
This is bringing greater attention to the mechanics of providing improved crypto liquidity and trading services to institutional clients.
In December, Japan’s SBI bought UK-based liquidity provider B2C2 in what it billed as a move to position the platform as “the natural entry point for financial institutions seeking a bank counterparty to trade digital assets”.
Other deals are likely, especially if bitcoin manages to avoid a big reversal in price in early 2021.
There are a growing number of crypto hedge funds – PwC counted around 150 actively managed funds in a survey it released in May 2020 based on first-quarter research – and the recent rally in bitcoin will drive this number up further.
This in turn should promote demand for tailored prime broking services – and another reason for junior and mid-level employees at banks to try to convince bosses such as JPMorgan chief executive Jamie Dimon to overcome their natural crypto-scepticism.
