The report states that big players who buy and sell bitcoins have considerable market-moving power, and Bitcoin prices could continue to rise as long as asset managers and companies continue to enter the market
Germany, March 18, 2021 /AlexaBlockchain/ – Bitcoin’s market cap of $1 trillion makes it too important to ignore, according to a new report by Deutsche Bank Research.
The report published Wednesday states that the bitcoin (BTC) value could continue to rise as long as it continues to attract asset managers and companies. However, the cryptocurrency is expected to remain volatile due to limited tradeability.
Bitcoin vs. Currencies
Comparing Bitcoin with other currencies, the report states that Bitcoin’s systemic risk is low. Any causality is unidirectional; that is, the value of the US dollar can directly influence the price of Bitcoin but not the other way around.
The US dollar currency index is usually inversely correlated with the price of Bitcoin. The nature of this correlation is still unclear. At this point, it is not even clear if the rise in yields is having any direct effect on the price of Bitcoin.
In terms of total currency in circulation, Bitcoin is the third-largest in the world, after the US dollar and the euro. This is mainly due to the vast increase in Bitcoin’s value recently. In early 2019, Bitcoin represented “only” 3% of the US dollars in circulation, but in February 2021 it surged beyond 40% of the US dollars in circulation.
Most Important Factor Driving Bitcoin
One of the most important factors driving bitcoin’s increased demand was the entrance of hedge funds and other institutional investors, according to Deutsche.
Deutsche Bank estimates that less than 30% of transactional activity in bitcoin is related to payments. In 2020, for example, 28 million BTC changed hands, equivalent to 150% of the total bitcoin in circulation. Meanwhile, 40 billion Apple shares were exchanged, equating to 270% of the total.
Furthermore, the average number of BTC exchanged daily in USD is equivalent to only 0.05% of yen and 0.06% of GBP that do so.
Therefore, bitcoin must transform potential into results, in the same way Tesla has done, according to Deutsche.
Tesla, like bitcoin, has sparked numerous debates about whether it is the future of the car or a “soon-to-die fad.” Sentiment has shifted dramatically in the last 18 months as Tesla proved itself able to deliver cars such as the Model 3 at scale.
Bitcoin’s current valuation has the broader shift toward cross-border digital currencies priced in, therefore it must demonstrate its value as a means of payment to live up to its reputation, Deutsche Bank’s paper concludes.
A report by World Economic Forum unveiled that Deutsche Bank is planning to launch Digital Asset Custody and Prime Brokerage Service for institutional clients. The report also mentioned that the bank has completed its proof of concept and is aiming for a minimum viable product (MVP) in 2021 while exploring global client interest for a pilot initiative.