Institutional interest in the digital asset space continues to rise

Following in the footsteps of Goldman Sachs and Bank of New York Mellon, one of the most conservative financial entities, Bank of America, has reportedly begun allowing some clients to trade Bitcoin futures, which is a big turnaround for this financial institution’s philosophy, despite Bank of America has been wary of cryptocurrencies for some time, and in March one of its analysts wrote that Bitcoin “has not been particularly compelling as an inflation hedge.”

The new appeal for BofA is the significant margin it requires, which could make it a very rewarding business opportunity. The bank will reportedly use CME futures, which were launched in 2017 and have since become one of the most well-known Bitcoin futures trading tools. Earlier this month, Bloomberg reported, the bank had created a new team dedicated to researching cryptos.

Square (SQ) frontman Jack Dorsey said, in his turn, that he is establishing a new business unit that will combine Seller, Cash App & Tidal to focus on “building an open developer platform with the sole goal of making it easy to create non-custodial, permissionless, and decentralized financial services with primary focus is Bitcoin”.

More than 10,880 existing cryptocurrencies have a total market cap of $1.19 trillion, according to the latest data. Only 71 of them (i.e. less than 0.66%) crossed the $1 billion mark. A little over a decade ago, technology gave us a new asset class.

At the turn of the 21st century, the idea of ​​cryptocurrencies seemed like science fiction, and it would hardly evolve into the state of their adoption as legal tenders of several sovereign countries (and more to come) unless traditional fiat currencies became epic failures (nothing had indicated back then the things would develop such a wrong way for the latter).

Ten years ago, Bitcoin looked more like a new kind of video game (in which miners earn tokens that can be exchanged for prizes) than money. However, over time, tokens in many senses became better than stocks, creating many millionaires and billionaires – many of whom were willing to donate and invest in the real economy. Investors who invested early and ignored volatility became fabulously wealthy.

Meanwhile, even a 50% sell-off in Bitcoin since its April 14 peak has failed to end the story – the outcome many skeptics hoped for. Even with the recent 50% crash, the $100 invested in bitcoin in 2010 is now worth over $64 million (based on a $32,000 token price).

After all, any asset that jumps from five cents to over $32,000 cannot be trashed so easily. Many critics say that such a spectacular fall without even an attempt of a bounce-back is an apparent indication of deep-rooted problems in the entire sector.

The relentless pursuit of the next Bitcoin, Ether, Dogecoin, or any other cryptocurrency that will bring wealth to visionary investors is a powerful factor that drives new tokens to emerge every day. However, calling the whole crypto market a scam and a place for naïve speculators like co-creator of Dogecoin Jackson Palmer did last week is oversimplification and evidence of ubiquitously persistent misconception.

After all, what about gold?

Gold is still perceived as the ultimate safe haven and an anti-inflationary remedy of last resort. Nevertheless, its price has been hovering around $1800/oz for nearly a year despite rising expectations of the Fed’s actions based on the then ongoing and now current inflationary spike. Asset prices rarely move in sync with our willingness, reasons and intuition. However, in the long run they never fail to reflect fundamental economic principles.

Parabolic rallies always happen to attract people, again and again, although many of them realize that bull and bear market extremes are often irrational, unreasonable and illogical.

In April 2020, WTI crude oil futures dropped to a negative number of dollars per barrel, which many traders considered simply a joke, and now they are trading it at $72.42 a barrel. In 2011, cotton futures, which are trading at around $0.90 today, jumped to $2.27. Until 2010, the cost of this raw material never exceeded $1.1720 per pound. Many traders, manufacturers and consumers considered the rally to be irrational.

Here’s another example: In recent months, lumber futures have jumped to $17,000 per thousand board feet and fell to the current $536. Until 2017, prices did not exceed $495. Many silver bulls are eagerly awaiting the precious metal’s return to its 1980 highs of $50.36. The last time the precious metal made a similar attempt was in 2011, but the upside potential was exhausted at $49.82. Silver is currently trading at $ 26.43 an ounce.

Over the years, we have seen parabolic ups and downs in commodities and stocks. Recently, it was the turn of cryptocurrencies, which have experienced some of the most aggressive rallies and trades for years. Bull markets attract speculators who want to catch the passing train, but very few of them can do that. That being said, nothing undermines the viability of a particular asset class based on the sole fact of its high volatility.

Source: Market Data

The cryptocurrency market is still young, which means that the classic “pump and dump” behavior will be encountered regularly, as scammers play on the greed of the unchallenged crowd. Such features of this market certainly don’t add to its attractiveness, but equally true is the fact that they don’t ruin it on their own.

Many assets haven’t been particularly rational in recent years, and this fact takes its roots from the increasingly big involvement of central banks into the foundation of free price formation based on the free market economy.

Blockchain technology is a guaranteed foolproof against any kind of cartelization of this industry. It was designed exactly to prevent the things Palmer is referring to. “Shady business connections” is something exclusively attributable to the short history of this market and lack of the established self-regulatory principles.

But the Securities and Exchanges Acts of 1930 and 1933 appeared only as a result of everyone’s strive to make that place more orderly and disciplined in order for it to perform better and more predictable. This is exactly what we are expecting from the crypto mining and trading industry, whether we criticize or endorse it, aren’t we? It will surely come one day.

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