Hello, Market Wrap readers! During the final two weeks of 2021, we’re using this space to recap this year’s most dramatic moments in cryptocurrency markets – and highlight the key lessons from this fast-evolving corner of global finance. Over a series of eight posts starting on Dec. 20 and running through Dec. 30, we’ll recap what shook crypto markets this year. (For the latest crypto prices and news headlines, please scroll down.)
In our first episode today, we show how, even as bitcoin’s price soared in the early days of the year, some savvy institutional investors were already growing cautious on cryptocurrencies after a wave of buying during the fourth quarter of 2020.
Bitcoin (BTC) started 2021 on a strong note, gaining nearly 40% during the first week of January and surging to a new all-time high around $40,000.
But not everyone was convinced the rally could be sustained.
Retail traders piled in, while some institutional investors started to raise concerns about rampant speculation.
As early as December, Jeff Dorman, chief investment officer at crypto asset management firm Arca, had told CoinDesk that “there is a good chance that actively managed hedge funds and passive indexes built around high allocations to bitcoin have a very short shelf life.”
Bitcoin quickly advanced from $30,000 to $40,000 within the first five trading days of January – an impressive gain that fueled even more market excitement. The sharp price rise in BTC contributed to a $1.1 billion profit for Ruffer Investments, a U.K. based investment management firm, in just five months. By June, Ruffer stated that a “speculative frenzy” in cryptocurrencies forced the firm to exit its bets on further gains.
And Ruffer was not alone in its concern about market exuberance. Volatile price swings caused other institutional investors to doubt a prolonged crypto rally.
Sure enough, by the end of January, bitcoin had declined about 30% from a January high of near $40,000. Shortly after the price drop, Scott Minerd, chief investment officer at the Guggenheim global investment firm, said he didn’t believe bitcoin’s investor base was “big enough” or “deep enough” to keep prices at current levels.
“Right now, the reality of the institutional demand that would support a $35,000 price or even a $30,000 price is just not there,” he said.
At the same time, a JPMorgan analyst said a bearish outlook could be triggered if bitcoin failed to claw its way back over $40,000, leading to steeper losses over the ensuing weeks.
As coming installments of this series will show, the rest of 2021 would be defined by market-moving tweets from electric-vehicle billionaire Elon Musk, rapid price rallies in barely-heard-of alternative cryptocurrencies, a fresh wave of corporate buy-in to the legitimacy and potential of digital assets, plenty more moments of extreme volatility – and, eventually, a new all-time high of around $69,000.
(As of 21:00 coordinated universal time, or 4 p.m. ET)
- Bitcoin (BTC): $47,080, +0.5%
- Ether (ETH): $3,936, +0.3%
- S&P 500: -1.1%
- Gold: $1,790, -0.8%
- 10-year Treasury yield closed at 1.424%, up 0.017 percentage point
Here are the biggest gainers and losers among the CoinDesk 20 digital assets, over the past 24 hours:
Sector classifications are provided via the Digital Asset Classification Standard (DACS), developed by CoinDesk Indices to provide a reliable, comprehensive and standardized classification system for digital assets. The CoinDesk 20 is a ranking of the largest digital assets by volume on trusted exchanges.
The leader in news and information on cryptocurrency, digital assets and the future of money, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. CoinDesk is an independent operating subsidiary of Digital Currency Group, which invests in cryptocurrencies and blockchain startups. As part of their compensation, certain CoinDesk employees, including editorial employees, may receive exposure to DCG equity in the form of stock appreciation rights, which vest over a multi-year period. CoinDesk journalists are not allowed to purchase stock outright in DCG.