Those who have held onto Bitcoin for the long term will rake in some profits as the world’s largest digital asset hit an all-time high, and matter experts expect values to rise even further in the months to come after a potential short-term dip.
The cryptocurrency is now worth more than $66,000 (Dh242,416), which is more than it has ever been valued at. It breaks through the records set in March and April of this year. The record price comes after Bitcoin started the month at around $43,000 (Dh15,793), and has gained almost half that price since.
The price of Bitcoin is soaring as the world’s first Bitcoin ETF (exchange-traded fund) was listed on the top US stock exchange, NYSE, a move that analysts had said could sky-rocket the price of the cryptocurrency.
The first of its kind – ‘ProShares Bitcoin Strategy ETF’ – was launched on the US New York Stock Exchange (NYSE) on Tuesday.
“Long-term Bitcoin holders will begin to realise some profits amid near all-time price highs, but we expect values to continue to rise due to more active market participants,” said Nigel Green, chief executive and founder of Dubai-based financial advisory firm deVere Group.
Bitcoin up 35 per cent since mid-September on ETF news
“The Bitcoin price has gained around 35 per cent since mid-September as interest around the first US-approved Bitcoin ETF has grown,” Green further added.
“It’s been seen as a major test to see if mainstream investors are ready to include cryptocurrencies in their portfolios alongside other assets such as stocks and bonds – and it appears, judging by the reaction, that they are.”
The ‘ProShares Bitcoin Strategy ETF’ (Trade name: ‘BITO’) jumped 4.8 per cent to close at $41.94 (Dh154.04). The fund tracks Bitcoin futures (contracts speculating on the future price of Bitcoin), rather than the crypto itself.
Bitcoin ETF prices will be somewhat differ from Bitcoin prices
That means investors in the ETF should expect the price and performance of the shares to differ somewhat from the price of Bitcoin itself.
This isn’t ideal for existing investors; many of them take a long view on cryptocurrencies and had hoped for an ETF that would track physical Bitcoin that investors could buy and hold.
With this type of ETF, while you’re getting exposure to the futures market, there’s a whole bunch of nuance, experts warn.
A futures market phenomena, like when the manager has to roll out of an expiring contract and into the current contract, will impact this fund’s ability to effectively track Bitcoin’s actual price and could raise trading costs for the fund.
The price of Bitcoin is expected to rise even further
“This will continue to drive not only Bitcoin but the wider digital assets sector, thereby encouraging more ETFs, amongst other crypto vehicles, to be brought to market,” Green added.
“This will bring in a growing number and broader range of active market participants, including those using pension funds, and retirement and brokerage accounts. The growing interest in and demand for crypto will help maintain the upward trajectory of Bitcoin and other digital currencies in the near term.”
The crypto industry has been hoping for a Bitcoin-related ETF for many years. In about 2017, asset managers tried to launch Bitcoin ETFs but their proposals were rejected by the US securities regulator, saying that none were able to prove market resistance to manipulation.
Will the impact of Bitcoin ETF on markets be significant?
Some also argue the impact of an ETF, particularly one tied to futures contracts, is minimised by adoption of crypto by companies.
However, the general view among analysts is that the launch of the first Bitcoin-linked ETF in the US will bolster the broader crypto market and help an entirely new investor class experience the benefits of Bitcoin as a legitimate asset.
Investors have many other ways to get indirect exposure to Bitcoin without actually owning it, through funds, financial apps, or crypto-related equities.
Bitcoin to rise in the long term, fall in the short term?
“Long-term holders typically buy in a bear market (with a declining trend) and sell in a bull run (rising trend),” Green said. “They are spurred (into selling Bitcoin) and realising some profits when the price is close to or breaks the previous all-time high.
“As such, we can expect to see some long-term holders now cashing in some Bitcoin with a view to accumulating more later.”
However, the Green added that any long-term holders’ selling Bitcoin is “likely to be balanced by growing activity by new investors” and that therefore “the price momentum should be sustained.”
All that being said, investors would be mistaken to ignore the rise of cryptocurrencies, explained other financial planners in the region, while adding that it’s not recommended to assume this latest trend should be dismissed completely.
Can the risk of investing in Bitcoin be reduced by investing in ETFs?
As Bitcoin hits an all-time high, you may be looking to gain some exposure as a result of the latest developments. Before you do, however, here are some reminders.
- What to keep in mind when buying, trading Bitcoin in the UAE
- UAE has what it takes to be a global cryptocurrency hub – and regulations will help
- UAE: What all should I weigh when investing in Bitcoin and other cryptocurrencies like Ethereum, Litecoin, Dogecoin?
- Cryptocurrencies: Worth watching from the sidelines or spending your money on?
Experts reiterate that people educate themselves as much as possible on the technology, and then they can determine if they should be invested in digital currencies and if so, how much.
For many, the standard advice from financial experts is not to put more than 1 per cent to 5 per cent of your money into the assets will hold true.