(Kitco News) As bitcoin climbs the ladder towards $50,000, one critical development in the space could open the floodgates of institutional money, creating a possibility for bitcoin to become a six-figure asset, according to one popular crypto trader.
“The approval of an ETF would be the biggest single event in the history of bitcoin for that large wall of money to have the confidence to enter — pension funds, endowments, sovereign wealth funds. They will come in when there’s an ETF,” Scott Melker, crypto trader and the host of The Wolf Of All Streets podcast, told Kitco News. “That would be the catalyst for real institutional adoption of bitcoin. A regulated asset that they can trust and that is vetted by their risk managers and by the SEC.”
As U.S. Securities and Exchange Commission (SEC) Chairman Gary Gensler calls on Congress for additional authority and resources to oversee cryptocurrencies, Melker says regulation in the crypto space is inevitable.
“Gary Gensler taught blockchain at MIT. He’s a huge proponent of bitcoin. It’s nice to have someone who understands the asset,” Melker said.
The crypto trader expects sensible regulation from Gensler that would inspire more money to come into the crypto space.
“Reasonable regulation that protects consumers is a good thing and would likely open the door to a lot of big institutional money that’s waiting on the sidelines for that sort of green light to enter the space,” he said.
This week, the crypto world has been abuzz as bitcoin and ethereum are making significant gains above $40,000 and $3,000, respectively. And the rally happened despite the negative news cycle filled with regulation threats and a crypto heist.
Melker described the recent rally in crypto as prices catching up to the actual value.
“It’s a function of the price actually catching up to the value. We saw a major liquidation of leveraged traders, which caused the cascade of prices to go down much further than they should have. When bitcoin dropped from $60,000 to $50,000, we saw almost $10 billion in liquidation. One million individual retail accounts were liquidated. And we saw similar activity from $40,000 to $30,000. I don’t think that that was the fair value of bitcoin,” he said. “Now we’re seeing institutional interest coming back in and taking advantage of the dip prices.”
U.S. infrastructure bill is the greatest advertisement for bitcoin in history
There have also been many heated conversations within the crypto community and beyond about the U.S. infrastructure bill and the provision to partially fund the $1 trillion bill by imposing tax-reporting requirements on cryptocurrency brokers.
Aside from the whole debate around clarifying the definition of a “broker,” Melker said that the infrastructure bill is the greatest advertisement for bitcoin in history.
“We’re talking about printing over a trillion dollars out of thin air to pay for an infrastructure bill that has absolutely nothing to do with cryptocurrency. But the one cryptocurrency provision froze the bill for three or four days. And we had the entire world talking about bitcoin and the crypto industry. There’s some irony there,” he described.
However, Melker does not see the crypto tax provision negatively impacting bitcoin at the end of the day.
“It’s raising awareness, which is probably actually causing more people to buy than to sell. Also, it’s one line in this bill that has very little to do with cryptocurrency. It still has to pass the House. And it still has to be signed into law. And that wouldn’t even happen until 2023. So we’re talking about a very long time horizon for any activity here,” he said.
Price outlook
Melker is projecting new all-time highs for bitcoin and ethereum by the end of this year.
“I believe that this correction is likely over and that we should see new all-time highs by the end of the year. I would not be surprised at all to see bitcoin trading in six figures within the next six to 12 months. Or ethereum even pushing towards $10,000 in that time,” he said.
Long-term, Melker sees bitcoin as a seven-figure asset and ethereum as a $20,000 to $30,000 asset at a minimum.
At the time of writing, the crypto space was consolidating after recent gains, with bitcoin trading at $44,240, down 4.50% on the day, and ethereum was at $3,044, down 5.73% on the day.
The assumption that bitcoin will become mainstream is a key element in Melker’s estimates. And according to him, this has already started due to the aftermath of the COVID-19 pandemic.
“Most people don’t understand what money is or have never questioned it. They just take for granted that it exists. It’s a means of exchange. That’s changed a bit in the last year and a half with COVID and monetary policy and everybody watching central banks print money endlessly while stocks go up and people in the real world suffer and don’t have jobs,” Melker explained.
There has been this grand awakening to central banks endlessly printing massive amounts of money, he added.
“And bitcoin is obviously a hedge against that. So in my mind, bitcoin has really solidified its case as digital gold or a store of value,” he stated. “Dollars are for spending and bitcoin is for savings. Bitcoin is a savings account that will appreciate over time and is a hedge against inflation and money printing, which we know will come.”
Melker sees big institutional players switching out of gold and embracing bitcoin, especially when an ETF is approved in the U.S.
“Maybe with regulation, and then an ETF, bitcoin can flip gold,” he said. “Institutional investors, including retirement funds, are huge machines that take a long time to turn and make changes. Gold’s luster will diminish as the price diminishes. And as the market cap diminishes, they’ll look to bitcoin.”