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SA crypto exchanges buoyant after Bitcoin hits record high

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South African-based crypto-currency exchanges are buoyant after the price of Bitcoin – the world’s most popular digital currency – yesterday hit a new record high of $66 000.

However, at the time of writing this morning, the price had gone down to $64 500. Bitcoin’s previous record was set in April, when the crypto-currency reached $64 800.

The surge in the price of Bitcoin comes after the crypto last month tanked when authorities in China intensified a crackdown on crypto-currencies, with a blanket ban on all crypto transactions and mining. At that time, Bitcoin fell to about $42 000.

In an e-mail to ITWeb, Farzam Ehsani, co-founder and CEO of SA-based crypto exchange VALR, says: “The previous all-time high was R975 000 set in April this year and yesterday the price touched R990 000 before retracing slightly.”

Ehsani says there are several reasons for Bitcoin’s appreciation. First, he points out the US Securities and Exchange Commission finally approved a Bitcoin exchange-traded fund (ETF), which commenced trading yesterday.

“This has been anticipated for many years and provided tailwinds for the crypto-currency markets.

“Secondly, in the traditional financial system, central banks continue to inject liquidity into our financial system and we’re starting to see inflationary signs in economies around the world. Bitcoin, with its finite supply and inherent digital scarcity, is seen as an inflation hedge and has become more popular among retail and institutional investors alike.

“We’ve seen trading volumes pick up on, with individuals buying as little as R10 to start off with.”

Ehsani expects Bitcoin’s volatility to continue but with a strong upward trend over time.

“Bitcoin’s market cap is still only $1.2 trillion, compared to gold which is 10 times this value. There is plenty of space for appreciation. We’ve seen crypto-currencies across the board appreciate in value, with the market cap of all crypto-currencies currently over $2.6 trillion.”

According to Ehsani, the impact of China’s declarations against Bitcoin has become more and more muted over time.

“The recent crackdown was marginal, with limited impact to the crypto markets, which recovered very quickly before continuing their ascent to all-time highs.”

Bitcoin shows the way

Concurring with Ehsani, Richard de Sousa, CEO of AltCoinTrader, also cites the US Bitcoin ETF, which commenced trading yesterday, as the reason behind the rise in price.

He notes the industry has been waiting for this for a long time. “This is a green light for institutional investment. In addition to that, we have finally seen a massive institutional awakening in the crypto space, and people are anticipating a huge inflow of funding as a lot of companies will start to initially invest a small percentage of their balance sheet in Bitcoin.”

Traditionally, De Sousa says, other alternative crypto-currencies, especially the good ones, will outperform Bitcoin with percentage yields over an annual period. However, of course, crypto-currencies are always led by Bitcoin, he adds.

De Sousa believes the Bitcoin surge will continue, saying this is the initial stage of serious institutional investment.

“Crypto-currencies, as a technology, will eventually cannibalise everything that we know about finance, just as the internet cannibalised everything we know about information, entertainment and every aspect about our lives.”

Commenting on the Chinese crypto crackdown, he says a lot of people believe this was a huge gift to the crypto community because there were just too many miners in China.

He points out there were concerns of mining becoming centralised in China, whereas crypto thrives in a decentralised world.

“What happened is we saw the mining hash rate dropping dramatically as the miners had to shut down in China. However, we have seen it picking up steadily and it’s almost back to where it was before, but it’s now decentralised and spread all over the planet Earth.

“We can now begin to trust that mining is not in one place. For example, if there are problems in China, the Bitcoin network will never be at threat because of the way it is now distributed. While this had a small negative impact on the price, it is an overall positive and good move towards decentralisation,” De Sousa says.

Whale of a time

For Brett Hope Robertson, lead investment analyst at Revix, the approval of the first Bitcoin futures exchange-traded fund means institutional investors − such as pension funds, retirement annuities, etc − can finally get regulated exposure to this crypto-currency without having to worry about the storage of Bitcoin or security.

“We saw just how much investors wanted this product – with over $1 billion in trading volume on the first day. This is a historical moment for crypto-currency adoption and a big step forward to an integrated future.

“The news of imminent approval has been bubbling under the surface for a couple of weeks and many investors have been buying up Bitcoin in anticipation of the ETF approval. This buying has been part of the reason for Bitcoin’s price driving to all-time highs,” says Robertson.

He adds the Chinese ban led to a panic in the market, which caused a sharp drop in the Bitcoin price. “Yet, while the market panicked, many smart entities and investors holding large amounts of Bitcoin (known as whales) were seeing this as an opportunity to get more Bitcoin at a discount and started buying it up.

“Now that the fears around the Chinese crackdown are but a distant memory, once again showing the resilience of the underlying technology, positive investor sentiment has come back into the market, and with it, renewed purchasing is driving prices up to record levels.”

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