It has been a volatile few months for bitcoin.
On Friday alone, the cryptocurrency briefly shot 20% higher after billionaire Tesla founder Elon Musk changed his Twitter bio to "#bitcoin."
Though it quickly gave up those gains, there are parallels between bitcoin's swift move higher and the GameStop stock mania, which continues to dominate the global news cycle.
The battle of hedge-fund short sellers versus retail traders who are coordinating on social media to drive the price higher could be a sign of what's to come for the world's biggest cryptocurrency.
Data from crypto news and analysis company The Block shows that hedge funds are short bitcoin by more than $1 billion.
That term "shorting" means that traders and hedge funds are betting that the price of bitcoin will go down. Those short positions ramped up starting in October 2020, just as bitcoin's latest rally began to take hold.
Meanwhile, individual investors are still buying into bitcoin, among other cryptocurrencies, as they bet that the price will go up.
Retail brokerages including Robinhood have extended trading restrictions on stocks such as GameStop, and as of Friday, the trading app is also limiting trading in cryptocurrencies.
Unlike GameStop, a brick-and-mortar mall business that was closing stores even before the pandemic led to widespread shutdowns, analysts say the fundamentals underlying bitcoin tell a more promising story.
Analysts at JPMorgan think the price of bitcoin could rally as high as $146,000, and the global head of CitiFXTechnicals says the charts signal that bitcoin could reach $318,000 by December.
Part of what's different about bitcoin's rally in 2020 versus its last run higher, in 2017, is that institutional investors are now adopting bitcoin, lending it newfound legitimacy and helping to erase the reputational risk of investing in the cryptocurrency.
"We've seen the majority of folks like insurance firms, asset managers, hedge funds and corporate balance sheets come into the market in 2020," said Michael Bucella, general partner at crypto firm BlockTower Capital.
The surge in interest from mainstream financial players hasn't just reformed bitcoin's image, it's also fomented a supply shortage.
"There is a large and emerging group of institutions that have an enormous capital base that are reallocating to this space," Bucella said. "And if you think about the supply-demand model of a commodity, the supply curve is declining over time to effectively zero, and the demand is increasing exponentially."
There will only ever be 21 million bitcoins in existence, because, like other cryptocurrencies, it was built around the principle of a finite supply. The total number of mined bitcoin is at roughly 18.6 million, so it's nearing its maximum threshold.
And that interest from institutional investors doesn't appear to be slowing down.
"There's a lot of demand, and there's not enough supply of bitcoin for every financial institution to have their own reserve to serve their clients," said McKenzie Slaughter, a member of the Black Women Blockchain Council.
The GameStop saga has been driven by a large group of Reddit day traders, at least some of whom are motivated by wanting to stick it to Wall Street. They coordinated online to pile into GameStop in order to drive the price of the stock higher, with the specific purpose of causing hedge funds to lose money.
That same underlying anger and frustration over how institutional investors make profits has also played a role in bitcoin's rise. A big part of the cryptocurrency's intrinsic value is derived from the fact that it isn't tethered to any one governmentnor is it pegged to other currencies.
Investing in an independent cryptocurrency such as bitcoin, therefore, means you are putting your money toward a technology and a currency that could one day replace the modern financial system. This is certainly not lost on retail traders looking for the ultimate way to cut institutional investors out of the equation.
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