RISK-ON TRADE

As central banks and governments unleashed the money-printing

presses and spending taps to combat the damage from the COVID-19
pandemic, plentiful liquidity has lifted assets from emerging
currencies and junk bonds to bitcoin and stocks.
Assets under management (AUM) at Grayscale, the world’s largest
digital currency manager, have soared to a record $10.4 billion, up
more than 75% from September. Its bitcoin fund is up 85%.
Smaller rival CoinShares says its AUM has climbed more than 150%
this year to $1.3 billion.
With governments and central banks in full stimulus mode, some
observers reckon bitcoin is a useful safeguard against inflation - with
supply capped at 21 million, its scarcity gives it an innate value.
Some who buy gold to hedge inflation risk may be turning to crypto,
JPM’s Panigirtozoglou said, adding: “There is a reassessment of
bitcoin about its value here as an alternative currency, as an
alternative to gold.”
But bitcoin’s rise outstrips gold’s gains of 20% or so, while an
inflation-linked government bonds index is up 4%.
Slideshow ( 3 images )

And its rally has sped up in recent weeks even as gold has flatlined,
and the resurgent pandemic makes a growth and inflation recovery a
distant prospect.
Graphic: Bitcoin vs. inflation hedge assets -

So what does the outlook for bitcoin look like?

Following a rapid rise in 2020, the cryptocurrency could be in for a short-term decline as the
pandemic wanes.

Miller Tabak Chief Market Strategist Matt Maley said he expects a 25 to 30 percent sell-off in bitcoin
in January.
"As the pandemic starts to fade a little bit [and] maybe that liquidity becomes a little less plentiful,
this (bitcoin) could get clobbered like it has many other times in the past,” he said.

Still, bitcoin continues to hold promise from a long-term perspective, for the simple reason that it
could eventually deliver on the promise it holds as an instrument that could transform how money is
exchanged.

Michael Bapis of Vios Advisors recently told CNBC that investors should hold onto bitcoin if they
have a long-term -- three-, five-, seven-year -- perspective.

“I just think you own it and put it away for a long-term investment and watch how it maybe
transforms the currency and the world we live in today,” Bapis said.

Irrespective of the bullish outcome, others, such as John LaForge of Wells Fargo, warn that investing
in bitcoin comes with its risk, comparing the speculative frenzy surrounding the cryptocurrency to
the 1850s California gold rush that ended in a damp squib.

This is not to say that things are not improving for bitcoin.

And while investors have both speculative and investing interest in bitcoin and cryptocurrencies in
2020, 2021 would center around continual improvements between traditional and crypto markets,

Pierce Crosby, General Manager at financial data company TradingView, said 2021 could see
continual improvements between traditional and crypto markets -- meaning the digital currency
could see greater adoption as an acceptable medium of exchange.

For instance, in October 2020, Paypal said it would allow customers to pay through popular
cryptocurrencies such as bitcoin and ethereum.