Bloomberg’s Galaxy Crypto Index, which includes Bitcoin, Ethereum and three other digital assets, has rallied from a 52-week low of 177 last March to a high of 1,650 in January — its highest point since January 2018. The index measures the performance of the largest cryptocurrencies traded in U.S. dollars.
Cryptocurrencies, and their underlying blockchain technology, have gained interest from investors over the past several years because of the immense profits they can generate. Investors have increasingly seen cryptocurrencies, in particular Bitcoin, which accounts for 66% of the market, as a potential hedge against inflation, which has increased from a low of 0.1% in May to 1.4% at the end of 2020.
And there is increasing evidence that institutional investors are looking to invest in digital assets. Grayscale, which operates the only exchange-traded digital asset products available in the United States, recently reported that its average institutional allocation in the fourth quarter of last year was $6.8 million, more than double the average in the previous quarter. Total contributions for the period totaled $3.3 billion.
But with the index moving in the same direction as equity markets, others suggest that this is nothing more than market enthusiasm, fueled by a positive economic outlook and novice investors coming into the market. A period of rising prices for digital assets and declining equity prices would imply the opposite, which is that there is rising momentum for digital assets.
Any news of further geopolitical stress or government intervention could hurt adoption rates, but widespread adoption of cryptocurrency will likely grow as governments and financial institutions look to digital money as a way to distribute aid and manage financial services. This could be particularly true in the life sciences sector as industry looks to address disjointed supply chains and distribution of critical goods.