Bitcoin to see lower institutional growth


BITCOIN’S popularity is expected to slump among institutional investors in the next couple of months after Tesla Inc co-founder and CEO Elon Musk hinted that the carmarker may sell some of its bitcoin holdings and stop accepting the currency for payment.

Tokenize Technology (M) Sdn Bhd founder Hong Qi Yu admitted that the argument made by Musk on token mining activity’s impact on the environment will lead to traction with other investors and companies in the US and elsewhere, leading to some price action in the cryptocurrency market.

“I think there are a lot of hidden agenda that is related to the micro-outlook. Bitcoin has had significant growth since early this year and I think now is just poised for a healthy correction with Musk as a catalyst factor.

“The uncertainty and Musk’s changing stance are poised to lead some hedge funds to strike with short-selling, while some institutions who get in early in the rally trying to take partial profit,” Hong said.

Bitcoin last traded at a three-month low of US$45,629 (RM188,448) yesterday as investors sold off the cryptocurrency complex in the wake of Musk stating that Tesla is considering or may have already sold some of its bitcoin holdings which he then stated has not been done at present.

Early this year, Musk boosted the crypto market with his enthusiasm for the asset class, but has lately roiled traders by appearing to cool on bitcoin in favour of its one-time parody, dogecoin. The volatility in the tokens has spooked traders.

Bitcoin fell more than 9% yesterday to US$42,185, its lowest since Feb 8, after Musk said Tesla would stop taking bitcoin as payment.

Hong suggested that the leading coin is a “symbol of risk appetite”.

“There is some shifting and rebalancing in the market where institutional players are getting ready for the US Federal Reserve to start raising interest rates soon.

“Most tech-related equities are getting hit as there is some rotation in the sector and asset class now,” said Hong.

Tesla and Musk have dominated the headlines since early this year after its US$1.5 billion investment in bitcoin and plans to accept the token as a payment method for Tesla vehicles.

Prior to that, MicroStrategy Inc, the largest independent, publicly traded business intelligence company, had purchased more than 90,000 bitcoin.

In mid-December 2020, UK-based asset manager Ruffer LLP announced it had accumulated £550 million (RM3.2 billion) worth of bitcoin in a cumulative investment since November, allocating 2.7% of the company’s portfolio to bitcoin.

In addition, BlackRock Inc, the world’s largest asset manager, announced it has “started to dabble” in bitcoin, an asset which surpassed US$1 trillion market capitalisation last month, but has since dropped to US$840 billion to date.

While bitcoin is losing some of its appeal, the second-largest cryptocurrency, ethereum, has gained more traction with investors.

Hong attributed this to ethereum’s EIP-1559 fork protocol which will take place in July.

Like bitcoin’s halving, EIP-1559 is a mechanism that will reduce ethereum supply which then could attract more demand.

“Currently, the quantitative hardening and deflationary asset nature of ethereum are more attractive than bitcoin. There are funds shifting from bitcoin to ethereum,” he added.

Ethereum price had surged by 96% in the last three months, while bitcoin, during the same period, fell by 8.15%.

“I think bitcoin is like the gold standard, it is healthy to see the currency lose its dominance and diversify to ethereum or other alternative coins. This signifies growth in the cryptocurrency ecosystem,” Hong said.

There are more than 9,800 cryptocurrencies in the market according to