Crypto Market Analysis: 25th January 2021

Global markets hit new heights last week, reflecting the dawn of Biden’s administration as the 46th US president was inaugurated on Wednesday. The S&P 500 was the leading beneficiary, whilst the FTSE 100 also climbed on the ‘Biden bounce’.

Conversely, bitcoin struggled and spent much of the week on a slow but steady decline, but has recovered somewhat over the weekend, currently sitting at $33,400. Ethereum bucked bitcoin’s trend and hit a new all-time high of $1,456 this morning.

Simon Peters, analyst, eToro: Bitcoin bearish movement not a bursting bubble 

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Bitcoin, having smashed through $40,000 just two weeks ago, is now on the retreat. With the cryptoasset dipping steadily last week, some of its investors will no doubt be wondering: “Is this it?”

In my view, no. Despite the drop, the demand from large institutional investors remains impressive. Institutional investment trust Grayscale is continuing to pick up all the bitcoin it can, CoinTelegraph reported on Tuesday that it had bought some $600m of bitcoin in just 24 hours. The demand isn’t slowing and I believe that many investors will view any significant dip not as a bubble burst but as an opportunity arisen. Investors of all sizes will be looking at a price in the region of $28,000 as an excellent chance to top up their positions.

Given the run that we have seen in recent weeks, I have mentioned before and still believe that a correction is on the cards. That, I would say, is what we’re seeing now – as opposed to something much more serious like the plummet that we saw at the end of the 2017/2018 bull market. Despite any very short-term movements, the fundamental backdrop for bitcoin remains positive and my minimum price target of $70,000 for the end of 2021 remains in place.

David Derhy, analyst, eToro: Ethereum all-time high despite stiff competition 

Ethereum bucked the trend set by bitcoin. Instead of sinking, the smart contract platform’s token hit an all-time high on a number of exchanges. These continue to be exciting times for the Ethereum Foundation and its platform, despite the competition heating up from the likes of Polkadot and Cardano, both of which have also performed well this week. The interoperability protocol Polkadot has seen an exceptional rise in 2021, from $8.80 at the turn of the year to an all-time high of $19.32 earlier this month.

Given the dip from bitcoin and the steadiness of Ethereum, we could see investors move capital into the latter as they look for the next cryptoasset that is going to perform in the current bull run. With a drop towards $30,000 for bitcoin, some might be thinking that now is the time to rotate into alts. 

Simon Peters, analyst, eToro: Insti investors may set sights on upcoming crypto indices

A swathe of institutional investors have clearly caught the bug for bitcoin, as has been demonstrated on a number of occasions both in this newsletter and in the wider media. Our own report, Identifying the Formula for Institutional Adoption of Crypto Trading, launched last week with Aite Group, shows that although institutional investment was on the uptick, there are still barriers to entering crypto that need to be addressed. The perceived insufficient market cap size was the most cited hindrance from the institutional market participants that were interviewed. More details can be found in the report, here.

Should these barriers to entry begin to fade, where else might these investors look beyond bitcoin if they are interested in the wider benefits of investing in the crypto sector?

There are two main routes that they would likely look to go down. Firstly, institutional investors may look to invest in companies that are part of the crypto ecosystem: firms that have gone public and generate a significant portion of their revenue from cryptoasset-related activities, such as being an exchange or offering third party custody or related services.

The second option, and this is the most likely in my eyes, would be to invest in an index of cryptoassets. S&P Dow Jones Indices is already gearing up to launch ‘cryptocurrency indices’ this year. If a trustee or other institutional investor recognises and wants to be a part of the growth in the cryptoasset sector, then an index of assets would be highly beneficial to them, both from a research perspective and from a logistical perspective. They would not need to carry out research on every individual coin in the basket (though it wouldn’t go amiss), and they could easily invest capital without the hassle of apportioning a new asset class allocation in their portfolio.

Just as 2020 was the year of institutional investment in bitcoin, so 2021 could be the year of the cryptoasset index.

Simon Peters, analyst, eToro: ECB and EC close consultation and ‘investigate’ the digital euro 

The European Central Bank, having closed its recent consultation on a digital euro, announced it would be teaming up with the European Commission to investigate the ‘policy, legal and technical’ aspects of a CBDC.

Admittedly, it does feel like we have been here before. But it’s always positive to see new steps taken towards a digital currency, which would ultimately benefit the wider crypto space as more and more consumers are introduced to (and become comfortable with) using digital money. The world is being digitised, and the financial system needs to keep up. 

David Derhy, analyst, eToro: Binance burn follows new peak for CZ’s crypto 

Binance Coin joined ethereum in the all-time high club, as investors piled into the cryptoasset in anticipation of last week’s token burn. The 14th burn of CZ’s token saw 100m burned, which equates to around half of the supply. CZ also announced that the firm has unlocked $750m worth of BNB which would be moved to a team token address. These were unlocked during the most recent burn. Not a bad amount of crypto to have lying around – if you can remember it. In different circumstances, other crypto owners have not been so lucky.

This is a marketing communication and should not be taken as investment advice, personal recommendation, or an offer of, or solicitation to buy or sell, any financial instruments. This material has been prepared without having regard to any particular investment objectives or financial situation, and has not been prepared in accordance with the legal and regulatory requirements to promote independent research. Any references to past performance of a financial instrument, index or a packaged investment product are not, and should not be taken as a reliable indicator of future results. 

All contents within this report are for informational purposes only and does not constitute financial advice. eToro makes no representation and assumes no liability as to the accuracy or completeness of the content of this publication, which has been prepared utilizing publicly-available information.

Cryptoassets are volatile instruments which can fluctuate widely in a very short timeframe and therefore are not appropriate for all investors. Other than via CFDs, trading cryptoassets is unregulated and therefore is not supervised by any EU regulatory framework. Your capital is at risk.

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Bitcoin (BTC) $ 27,396.34 2.00%
Ethereum (ETH) $ 1,651.55 1.96%
Litecoin (LTC) $ 65.91 1.21%
Bitcoin Cash (BCH) $ 234.09 6.47%