Bitcoin (CCC:BTC-USD) has been a well-known entry point into the world of cryptocurrency and defi.
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Its ascent, along with that of Ethereum (CCC:ETH-USD), paved the way for a wave of cryptocurrencies. In a sense, those two pioneers took a back seat of late while smaller projects received loads of attention.
First adopters were keen on Bitcoin long ago. They’ve since become interested in smaller projects for the most part.
But now, something interesting is happening that relates to Bitcoin. More traditional investors, including those who count on finance houses, like JPMorgan Chase (NYSE:JPM) and Citigroup (NYSE:C), are moving into Bitcoin.
You could be forgiven for believing that Bitcoin’s best days were behind it over the past few months. After all, it had hovered in the $40k range for quite some time. It seemed like that might be its new ceiling moving forward.
But thanks to slower adopters there is something very interesting happening with Bitcoin. The narrative of Bitcoin as a hedge against inflation is reemerging.
JPMorgan Chase analyst Nikolaos Panigirtzoglou noted that Bitcoin is drawing institutional investor demand as a hedge against inflation in an Oct. 6 note to the bank’s clients.
If you remember back to late 2020 and early 2021 Bitcoin also drew significant interest as a hedge against inflation back then.
BTC and the Gold Hedge
A clue as to the renewed interest in Bitcoin can be found in the year-to-date prices of gold. Gold has decreased in price by 6.5% in 2021. Investors expect that gold should rise in this environment as inflation concerns are mounting, but that doesn’t seem to be the case. Weak gold demand has caused prices to fall below $1,800.
So, given that gold isn’t fulfilling its role as a traditional buffer against inflation, institutional investors have looked to Bitcoin in recent weeks.
As a consequence, Bitcoin prices have increased 30.81% since Sept. 29, rising from $45.5k to above $54k. Meanwhile, gold prices are down a few percentage points over the last month. Citigroup has also noted an uptick in interest regarding Bitcoin and crypto recently as well.
Itay Tuchman is the global head of foreign exchange at CitiBank. He recently spoke about the intersection of cryptocurrency and ‘tradfi’, aka traditional finance, at the Token 2049 conference in London.
He stated that institutional investors who began learning about defi starting with Bitcoin, became immediately interested in wider implications.
“It was almost instantaneously a narrative about investing in crypto ecology, and decentralized networks and different kinds of financial architecture in the future,” Tuchman said. “[It] became a technology—an innovation-investment conversation—in a matter of seconds.”
Does that mean that Citigroup will soon break the mold and become the first bank with its own crypto custodian?
Tuchman seemed to imply that the chances are rising when he noted that his bank would have to do a considerable amount of hand-holding.
“In order for us to add value to our customer base, we have to add value in an environment that has the standards that we would expect from safety and soundness,” he said.
It is clear that Bitcoin is on the rise. Part of that has to do with its role as a hedge against inflation. The fact that investors are turning to it as gold falters in that role is extremely interesting in and of itself.
It seems to vindicate prior notions of Bitcoin as gold.
Equally as interesting is who is behind the shift. It’s institutional investors who are normally very conservative. They want a hedge against inflation. If Bitcoin can act as such a tool, then they’ll continue to raise demand for it. That is a sea change as well.
If prices continue to rise and more traditional investors realize Bitcoin as the new gold, then don’t be surprised when it tests new highs in price.
On the date of publication, Alex Sirois did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Alex Sirois is a freelance contributor to InvestorPlace whose personal stock investing style is focused on long-term, buy-and-hold, wealth-building stock picks. Having worked in several industries from e-commerce to translation to education and utilizing his MBA from George Washington University, he brings a diverse set of skills through which he filters his writing.
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