Celebration, concern as Bitcoin breaches R1m mark

Admire Moyo
By Admire Moyo, ITWeb's news editor.
Johannesburg, 27 Feb 2024
At the time of writing, the crypto-currency was trading at R1 089 550.18, a 3.76% increase from the previous day.
At the time of writing, the crypto-currency was trading at R1 089 550.18, a 3.76% increase from the previous day.

The price of Bitcoin, the world’s biggest crypto-currency, has reached a new high against the South African rand.

For the first time, Bitcoin’s price has breached the R1 million mark. At the time of writing, the crypto-currency was trading at R1 089 550.18, a 3.76% increase from the previous day.

While the Bitcoin price has surged, South African crypto-currency exchanges are urging caution, as more traders are tempted by Bitcoin’s value.

Farzam Ehsani, co-founder and CEO ofVALR, comments: “Bitcoin surpassing its previous high against the South African rand, with price discovery reaching north of R1 060 000, is both a cause for celebration and concern.

“On one hand, 15 years post-launch, it’s clear how resilient Bitcoin truly is. Despite the bearish market conditions over the past two years, it has seen an increase in the number of Bitcoin wallets, reached new heights in terms of hash rate, experienced institutional adoption at an unprecedented rate since the launch of Bitcoin Spot ETFs in the US, and is even inching towards new price territory in US dollar terms.

“With a vengeance, Bitcoin is re-emerging as the asset class of choice to hedge against currency debasement and as a way to access and participate in the global economy.”

On the other hand, Ehsani says it is alarming to see Bitcoin reaching new highs, not only in South Africa but also in other emerging economies, including Nigeria, Argentina, Lebanon, Turkey and Egypt.

“While inflation is a global issue, impacting countries in regions like the US, the European Union and the UK, its effects are significantly more pronounced in emerging economies.

“Bitcoin’s steady rise speaks to itssuccess but also signals the deterioration of today’s outdated monetary systems. This makes our mission to make Bitcoin more accessible to all even more urgent.”

Catalysing bullish momentum

David Porter, GM of AltCoinTrader, explains there are four catalysts behind Bitcoin’s recent price action.

He notes the first and probably the largest factor influencing the bullish momentum was the approval of Spot Bitcoin ETFs in the US, which started trading on 11 January.

“This has really signalled an expansion of demand for the crypto asset beyond the scope of traditional crypto enthusiasts to a wider market. Just the top two Bitcoin ETFs (Blackrock’s IBIT and Fidelity’s FBTC) have exploded to over $10 billion under management in little over a month. The ETFs buying has far outstripped the new supply from miners and continues to do so.”

According to Porter, the second catalyst is the impending “halving event” where the supply of new Bitcoin is cut in half.

“This is due to occur around 19 April. This ‘supply shock’ comes at a time when some of the largest asset managers in the world are exposing their ETF products to their massive client bases around the world.”

Porter adds that the third factor is the news that MicroStrategy purchased an additional 3 000-odd Bitcoin this month.

“MicroStrategy has been buying every Bitcoin they can lay their hands on as part of their corporate strategy to shield the firm from a devaluing dollar. The company now owns over $10 billion worth of Bitcoin, sitting at an unrealised profit of $4.6 billion. The company’s executive chairman, Michael Saylor, may go down in history for making one of the best and boldest investment calls ever.”

Renewed retail investor interest in the crypto asset is the final driver of the recent price action.

“We have seen a significant uptick in retail trading volumes in February, which we believe is brought about from the impending halving event and confidence in the asset class, as it continues to go more mainstream.”

Risk vs reward rollercoaster

Ovex chief investment officer Imraan Moola concurs, saying the main drivers behind the Bitcoin rally are the ETF issuance in the US and the Bitcoin halving coming up in less than two months.

“Investing comes with risk, and the greater the opportunity, generally the greater the risk. When it comes to Bitcoin volatility (risk), this has historically proven not to be for the faint-hearted, with many rallies that have seen its price rise 10 times, and then also many crashes, where the price has dropped over 85%,” says Moola.

“But we do not see this as a cause for concern and rather suggest investors to widen their investment horizon when allocating to this asset class.

“Punting around in any market requires accurate timing of entries and exits, but with Bitcoin particularly, when you zoom out, the price graph has still shown solid performance at almost any time since one invested in it. When we look at this in ZAR terms, it’s even more spectacular, with no long-term investors underwater with prices now at highs.”

Moola notes Ovex is optimistic on the investment proposition Bitcoin poses, even with prices where they are today.

“So, yes, we still believe prices will continue to appreciate from here and would even venture to say that what we have seen so far is only the beginning of the crypto golden era. Not just this year, but the next 18 to 24 months, will see Bitcoin prices rise to levels that will surpass many optimistic investors’ expectations.”

Adds Porter: “The price of Bitcoin reaching a new high in South African rands is bittersweet. The high in US dollar terms was $69 000 back in November 2021. The current US dollar price is a long way off at only $56 000. This illustrates the depreciation in the rand over a fairly short time-frame. Like many others, I firmly believe a small portfolio allocation to Bitcoin and some of the other ‘blue-chip’ altcoins to be a prudent strategy as a medium- to long-term rand hedge.

For Moola, if investors do not yet have any exposure to Bitcoin and are new to this crypto asset class, they should consider drip-feeding their portfolios gradually, with exposure for the long-term, rather than jumping in all at once with their target allocation.

“Not only could Bitcoin be a phenomenal uncorrelated asset to help diversify their portfolio, but it could also prove to be a good currency hedge against the ZAR, with some of the uncertainties ahead and the ZAR near record lows versus the US dollar.

“We do not give out investment advice, but hopefully these considerations will help investors make the right choices that suit their investment needs,” he concludes.