Cryptocurrencies are back. At least, that is the declaration made by numerous analysts over the last several days and even the opening statement of an article in the mainstream Financial Times. Following what is approaching a year and a half in the wilderness after the 2017 bubble that saw Bitcoin’s exchange value hit $20,000 and slump to under $3500 by the end of 2018, the biggest cryptocurrency is now up 140% over 2019. 70% of those gains have come over the course of this month.
The gains are also not only limited to Bitcoin. Litecoin, another cryptocurrency intended as a fiat alternative and whose proponents believe operates on more efficient blockchain technology than Bitcoin, is up 290% so far this year. Ether, the cryptocurrency native to the Ethereum smart contracts and decentralised apps blockchain platform has come back this year to the tune of 120%.
Analysts and market commentators are putting the rapid rebound taking place in the cryptocurrencies market down to interest from institutional buyers and venture capital funds. That’s the view expressed in the Financial Times by Manuel Ernesto De Luque Muntaner, CEO of Block Asset Management, the Luxembourg-based cryptocurrency and blockchain investor.
However, putting Bitcoin and the wider crypto market’s resurgence down to institutional investors and venture capital buyers begs an obvious question. Why would institutional investors be interested in investing in an asset class on its deathbed? Better value with prices depressed over the past year and something only adds up if these investors were already confident the market would bounce back with or without their investment.
There is no very obvious answer to that question. But it looks as though the awareness raised by the 2017 cryptocurrency bubble did not see interest entirely dissipate even if prices fell back. Institutional investors and others have since been working quietly in the background to set up the kind of infrastructure required for the market to become more reliable, transparent and mainstream.
The lull may now be over. Facebook are readying their own digital currency and investment bank JPMorgan Chase has also recently announced its cryptocurrency, which will be used to help corporate clients move assets between accounts more efficiently. New, institutional-level and regulated exchanges are nearing launch. The highest profile of which is Bakkt, being set up by NYSE-owner Intercontinental Exchange (ICE).
It will be interesting to see if the current gains in the cryptocurrency market again erupt into another full-blown gold rush or will be maintained at a more sustainable level. And are cryptocurrencies this time back for good?