Crypto bulls are back as bitcoin climbs to nearly $42,000 in 2021. Market observers, however, are not too enthusiastic. Danger is ahead with the resurgence of the world’s most renowned digital currency. Retail investors could pile into bitcoin like in 2018 and trigger a massive crash.
Bitcoin posted an all-time of $40,797.61 on January 8, 2021. Four days later, the price dropped by 16.85% to $33,922.96. A lot of investors sold their bitcoins when the price started to slide in late 2017. Perhaps the lack of institutional support was also a factor for the sudden fall. Bitcoin might again give up its gains as quickly as its appreciation.
Bitcoin defenders are sure the current surge is different from the 2017 rally. There are growing concerns regarding the excessive printing of money and aggressive monetary stimulus by governments worldwide. Similarly, the weakening of the U.S. dollar could lead to currency instability.
Investors are looking for new inflation hedges, and bitcoin is emerging as an attractive option. According to crypto players, the global monetary system is at risk. An analyst could be correct when he said bitcoin hasn’t changed from three years ago. Instead, the world around did.
Growing interest from institutional investors
The record-smashing rally of bitcoin in 2021 could be due to the growing of growing interest from institutional investors and billionaires such as Stanley Druckenmiller and Paul Tudor Jones. Druckenmiller compares bitcoin to gold. After investing in bitcoin, Tudor Jones said, “I came to the conclusion that bitcoin was going to be the best of the inflation trades — the defensive trades.”
PayPal is the latest large financial company that has made moves into the crypto space. Top corporate names like Square and MicroStrategy used their balance sheets to purchase bitcoin. Add to the building momentum is the fear of missing out (FOMO) sentiment by retail investors, according to global crypto leader Henri Arslanian from PwC.
Bitcoin is outperforming equities that it looks ready to become a superior digital currency. However, it doesn’t follow the king of cryptocurrencies is the safest investment. Some analysts say the blockchain technology supporting the digital coin is still years away from being a mainstream technology.
In 2021, investors should focus more on assets with real relevance. Shopify (TSX:SHOP)(NYSE:SHOP) ranks number one in the 2020 TSX30 list with its 1,043% performance over the last three years. Last year, the total return was 185%. This tech superstar should be a better choice than bitcoin.
Shopify is a success story and an e-commerce phenomenon. It overtook the Royal Bank of Canada last year in terms of market cap. As of January 18, 2021, its market capitalization stands at a towering $184.95 billion. Market analysts believe cloud stocks, especially Shopify, will continue to deliver outsized gains.
Oppenheimer analyst Brian Schwartz endorses Shopify. He says that Software-as-a-Service (SaaS) technology presents a powerful market setting for durable growth and cash generation. Likewise, market adoption is accelerating due to the COVID-19 pandemic. Analysts forecast the stock price to breach the $1,450 mark next or 24% higher than the current share price of $1,170.47.
The rising interest in institutional names is good news to crypto investors. However, many remain skeptical because bitcoin is an unregulated asset. If you’re tempted to invest, remember the 2018 crash that wiped out 80% of bitcoin’s value.
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Fool contributor Christopher Liew has no position in any of the stocks mentioned. Tom Gardner owns shares of Shopify and Square. The Motley Fool owns shares of and recommends PayPal Holdings, Shopify, Shopify, and Square and recommends the following options: long January 2022 $75 calls on PayPal Holdings.