By Paul R. La Monica, CNN Business
Bitcoin prices have been on a wild ride this year, and they are expected to end 2021 significantly higher than where they started.
A bitcoin is currently trading for just under $ 49,000, an impressive 66% increase from January levels. But the highest crypto is also down almost 30% from its high of almost $ 69,000 reached in November.
So what’s the next step for bitcoin and other cryptocurrencies?
It is undeniable that crypto has become mainstream. The total value of all cryptocurrencies in circulation is over $ 2.2 trillion, with bitcoin accounting for around $ 920 billion of that total.
Ethereum, or ether, is also starting to close the gap. Ethereum, which is a popular crypto for smart contracts and non-fungible tokens (NFTs) that have taken the art and collectibles world by storm, has a market value of $ 475 billion.
Ether prices have more than quintupled this year, going from around $ 730 per coin to almost $ 4,000.
There are now also several bitcoin exchange-traded funds (ETFs) that individual investors can choose from. ETFs investing in other leading cryptos could also feature in the cards.
“The next possible step is to launch additional ETFs for other coins. There will likely be an ether ETF in early 2022, ”said Nick Elward, senior vice president and head of institutional products and ETFs at Natixis Investment Managers. “There will likely be an ether ETF at the start of 2022.”
Leading professional and institutional investors, including top fund managers George Soros and Stanley Druckenmiller, have invested in crypto. Yet the latest pullback is a stark reminder of the notorious price volatility of bitcoin and other cryptocurrencies.
Less harsh crypto winters ahead?
Many investors rushed to bitcoin in 2017 and saw prices drop from around $ 1,000 per coin to just under $ 20,000 in December of the same year.
Then came the crash, with bitcoin plunging to around $ 3,500 by the end of 2018. Those prices obviously recovered – and then some – but it wasn’t until December 2020 before the coin returned to the $ 20,000 mark.
Such dizzying fluctuations in crypto prices are likely here to stay. The key, experts say, is for investors to learn to digest it and overcome the inevitable ups and downs.
“More than once we have seen a correction in the market,” said Anton Chashchin, managing partner of Bitfrost, a digital asset service provider, in an email to CNN Business. “If institutional investors start taking profits, then that can have a ripple effect. “
But he added that these large companies would likely continue to flock to bitcoin as a potential hedge against inflation and rising interest rates, which could hurt traditional government-backed currencies.
“Even though the source of interest for institutional investors is Fear of Missing Out (FOMO), all institutional decisions have been made after careful consideration. These companies understood the potential benefits of cryptos, ”said Chashchin.
The increased adoption and legitimacy of cryptocurrencies will also likely help mitigate some of the volatility. Prices may still move strongly, but the changes may not be as drastic as in recent years.
“Having bigger institutions with deeper pockets and more stable hands to buy crypto will help,” said John Wu, president of Ava Labs, an Ethereum-enabled blockchain company. “They can resist volatility.”
Elward of Natixis Investment also believes that more fund managers will take a closer look at cryptocurrencies and may move beyond passively managed bitcoin ETFs that simply mirror the direction of bitcoin futures.
“Active is a logical solution for crypto investors. I expect more managers to analyze which ones are most suitable to buy, ”said Elward.
He added that crypto is a natural extension of the so-called alternative investing world, a group of assets beyond stocks and bonds that typically includes gold and other precious metals.
In this sense, some experts believe that the ether and the third most valuable cryptocurrency in the world, the binance coin, could continue to gain market share compared to bitcoin.
“You have to look at the usefulness of cryptos. Ether could possibly be bigger than bitcoin. These are the backbone of NFT transactions, ”said Alex Lemberg, CEO of Nimbus Platform, a decentralized financial lending company.
Wu, from Ava Labs, also believes investors will go beyond bitcoin.
“We expect more dispersion in the crypto world. Prices will move more based on adoption, ”he said. “Cryptos will not trade so much in tandem.”
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