Bitcoin’s ‘Crypto Week’ climb to $120,000 points to possible bubble, says cryptocurrency expert.
The price of bitcoin topped $120,000 on Monday in a climb that reflects both genuine enthusiasm at the integration of crypto into mainstream finance and firm-driven volatility, according to one cryptocurrency expert.
The price of bitcoin topped $120,000 on Monday in a climb that reflects both genuine enthusiasm at the integration of crypto into mainstream finance and firm-driven volatility, according to one Northeastern cryptocurrency expert.
It raises the long-debated subject of whether the digital coin is in a bubble, says Ravi Sarathy, a professor of international business and strategy at the university’s D’Amore-McKim School of Business.
“It’s possible there’s a bit of a bubble building,” Sarathy says. “But there is some important context here.”
When it comes to bitcoin and bubbles, it’s never quite so simple.
Sarathy sees a number of things going on with the price of bitcoin. For one, bitcoin — and crypto more broadly — has been undergoing a process of legitimization thanks in part to the Trump administration’s crypto-friendly approach, and the gradual adoption of so-called decentralized finance (or DeFi) by mainstream investors.
The Securities and Exchange Commission has been paving the way for large financial firms and asset managers to offer crypto-related financial products, specifically ETFs (exchange-traded funds) that would allow investors to hold bitcoin. The change in guidance signals to investors that it’s safer to hold crypto assets, as mainstream financial institutions start to diversify into crypto.
“Portfolio managers now have the option to include assets like bitcoin and other digital currencies, which they’re buying up to include as part of that high-risk, high-return basket,” Sarathy says. “This wasn’t possible before.”
Sarathy says that the growing interest in crypto on the part of large firms is stimulating demand across the industry. There’s no reason to think that some of that demand isn’t all hype — many investors genuinely believe in bitcoin fundamentals: chiefly, scarcity (the supply of bitcoin is capped at $21 million coins) and decentralization, he says.
“You’ve got more and more demand building up for bitcoin from these institutional investors, but also retail investors, who are beginning to see that they can just go to Fidelity and give them some money to have invested in a bitcoin ETF,” Sarathy says.
The other force at play in the price of bitcoin, according to Sarathy, is the activity of so-called digital asset treasuries, companies that seek out certain types of assets as part of their corporate treasury to hedge against inflation.
Perhaps the most well-known digital asset treasury company is MicroStrategy, which started buying up bitcoin in 2020. It is now the largest corporate holder of bitcoin in the world, according to The Motley Fool, with holdings valued at approximately $65 billion.
As of June, there are at least 126 publicly traded companies with bitcoins on their balance sheet.
It’s possible, Sarathy notes, that some of these larger companies are propping up the price of bitcoin.
“Many of these digital asset treasury companies are not necessarily experienced investors, and it’s unclear how their fiduciary responsibilities are currently being regulated,” Sarathy says. “That contributes to market volatility, and could be the precursor of a bubble.”
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At the same time, several pieces of legislation that would establish industry standards and guardrails have many optimistic about the future of crypto. The “anticipatory rise” in the price of bitcoin, as Sarathy describes it, comes as U.S. lawmakers are set to advance legislation.
Three separate pro-crypto bills are under consideration by the U.S. House of Representatives. The GENIUS Act would create a regulatory framework to support the creation of stablecoins, which are a type of digital asset that is pegged to another currency, such as the U.S. dollar.
That includes mandating that firms that wish to issue their own coins hold a reserve of liquid safe assets to support the cryptocurrency; that holders be prioritized for repayment in the event of a bankruptcy; and that issuers adhere to anti-money laundering rules and anti-terrorism sanctions.
The Senate is nearing a final vote on the GENIUS Act this week.
The House is also set to take up the CLARITY Act, a market structure bill that would establish a clear system for the regulation of cryptocurrencies. The bill includes mandates that cryptocurrency developers provide accurate, relevant disclosures of information pertaining to operation, ownership and structure; and that customer-facing firms segregate customer funds from their own and address conflicts of interest, among other things.
Lastly, the House is weighing a bill that would bar the Federal Reserve from issuing its own central bank digital currency (CBDC), called the Anti-CBDC Surveillance State Act.
While it’s been a big week for crypto, Sarathy expects the price of bitcoin to cool off in the coming days.
“Once the legislation has passed, I expect there’ll be a slight fall off in prices because the positive news has already been built into the price,” Sarathy says. “Crypto is highly volatile in the short term, and sometimes in the medium term, but long term if you look at the long-term trend for bitcoin from 2009 onward, it has risen very significantly. Institutional investors with that long-term view aren’t going to be so concerned about the price level today and short-term fluctuations.”
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