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Bitcoin: a pyramid scheme or a legitimate asset?

Experts from the European Central Bank believe that the continuous increase in the value of the first cryptocurrency will only benefit early holders of BTC.
Bitcoin: a pyramid scheme or a legitimate asset?

The past week in the cryptocurrency market can be aptly described as a rollercoaster. Ethereum surged by 11%, while Bitcoin peaked with a 9.6% increase. However, by Wednesday evening, both cryptocurrencies had returned to their starting points from the beginning of the week, reports a correspondent from the business information center Kapital.kz.

Over the month, Ethereum showed a modest increase of only 4% compared to Bitcoin, which strengthened by 8%, making it the leader of October. Analysts from QCP Capital emphasized that Ethereum has strong potential to break through the resistance level at $2800 and reach the $3000 mark. If this scenario plays out, Bitcoin could surpass the $70,000 level, attracting even more attention from retail investors. Experts noted a high likelihood of this outcome, considering the current political and economic conditions. With just a couple of weeks left before the U.S. presidential elections, the stock market has shown resilience during this time, bolstered by a predominance of call option purchases in the derivatives market. This indicates that investors are actively betting on further growth. Many specialists suggested that political stability and favorable attitudes from candidates towards cryptocurrencies could significantly improve the climate for digital assets.

QCP Capital specialists predict price consolidation around current levels with possible attempts to continue rising in the absence of significant external catalysts. They believe that this consolidation will be accompanied by a moderate decrease in volatility. This will create conditions for further market strengthening. One key event will be the publication of the U.S. manufacturing sector's business activity index on October 24. Experts noted that the market will be looking for confirmation of the Federal Reserve's commitment to lowering rates, which could support cryptocurrencies and stock assets. Many players are anticipating additional signals from regulators that could strengthen market positions.

Bitcoin options market participants are also preparing for a "bullish" scenario following the U.S. presidential elections and the Federal Reserve meeting, increasing open interest in November call options with strike prices above $80,000, as reported by The Block. The first event will occur on November 5, followed by the second three days later. The probability of a 25 basis point easing in the Fed's monetary policy was estimated at 87%, while the chance of Republican candidate Donald Trump, perceived as more favorable to cryptocurrencies, winning was 65.5%. This has also sparked renewed interest from institutional investors looking to secure positions in anticipation of future changes. On the Deribit platform, over 3100 calls with strike prices from $80,000 to $82,000 and an expiration date of November 29 were opened, totaling $212 million. For puts, open interest reached $82 million. According to Andre Dragosh, head of research at Bitwise in Europe, the recent increase in this indicator signifies long hedging. Experts note that many investors use options to mitigate risk, which may be preparation for high levels of volatility in the future.

On October 21, inflows into spot Bitcoin ETFs reached $294.3 million, with total inflows over the past week amounting to $2.67 billion. On the last day, BlackRock's IBIT saw an influx of $329 million, while the changes in five other products ranged from -$22.1 million to $5.9 million, with no changes recorded in the remaining six. Since trading began in January, total inflows into these instruments have risen to $21.2 billion. This indicates that interest in Bitcoin ETFs from institutional and retail investors remains high, although inflows into some products have been unstable. “While institutional support remains strong, the slowdown in inflows suggests potential for further weakening of momentum if capital does not start returning to the market,” commented Valentin Fournier from BRN. According to the expert, technical indicators also pointed to a similar scenario, suggesting Bitcoin's consolidation before a new upward attempt. This may take some time; however, long-term prospects remain optimistic when considering all existing fundamental and technical factors. “Once the price stabilizes above $68,000, we will enter a calmer phase with suppressed volatility, which could potentially lead to a resumption of growth acceleration. We maintain optimism for the medium term and do not expect a trend reversal,” the expert explained. He added that strengthening positions above $68,000 would provide additional support for long-term upward movement.

Bitcoin's price is expected to reach $13 million per unit within 21 years, stated MicroStrategy founder Michael Saylor in an interview with "Madison Ready." According to his forecast, digital gold will increase annually by an average of 29%, leading to the established target price. These prospects are based on calculations considering the growing acceptance of Bitcoin among institutional and retail investors, as well as its limited supply. Earlier, Michael Saylor mentioned that MicroStrategy's goal was to transform the company into a leading Bitcoin bank with a total capitalization of $1 trillion. The company holds the largest reserves of cryptocurrency among corporations, totaling 252,220 BTC. The accumulation of digital gold on the company's balance sheet began in August 2020. This strategy continues to attract attention from both Bitcoin supporters and critics, who point out the high risks associated with such significant concentration of cryptocurrency assets. “My shareholders have shown an exceptionally positive attitude towards Bitcoin. There hasn't been a single MicroStrategy shareholder who bought shares and did not support cryptocurrency,” commented the entrepreneur. Michael Saylor emphasized that confidence in Bitcoin is a crucial part of the company's strategy and future growth. He identified the expansion of institutional acceptance of cryptocurrencies as one of the key factors contributing to price growth. The expert acknowledged that it was necessary to use regulated solutions for asset custody to ensure security and compliance with regulations.

It is important to note that the need for regulation and asset custody security are among the main challenges for the crypto industry, and their resolution could impact the level of trust from major players. When asked about the risks of confiscation by authorities of large amounts of Bitcoin concentrated with a few major custodians, similar to the gold confiscation in the U.S. during the Great Depression, he replied that he did not fear this scenario. On the contrary, he suggested that cryptocurrencies themselves create protective mechanisms that make them resilient to such threats. Michael Saylor believes that the nature of Bitcoin makes it a difficult asset to confiscate, especially if users opt for self-custody. He opined that the risk of confiscation would intensify the concentration of cryptocurrency in the hands of those who do not recognize government, reporting, and taxes, referred to as "paranoid Bitcoin anarchists." In November 2022, amid the collapse of the FTX cryptocurrency exchange, he emphasized the importance of self-custody of digital assets. Just a few months later, he expressed the view that stricter regulation is a necessary element for the further development of the crypto industry. According to him, tighter regulation would not only help protect investors but also create conditions for broader cryptocurrency acceptance. In August, the entrepreneur confirmed that he personally held digital gold worth over $1 billion. According to his previous statements, he held 17,732 BTC, which amounted to approximately $1.19 billion at that time. Michael Saylor stated that owning Bitcoin is not just an investment but a long-term strategy focused on preserving and growing capital.

Chris Arulia, head of institutional services at Bybit, explained to Cointelegraph the increase in investment inflows ahead of the U.S. presidential elections. “As November approaches, investors will be able to bet on the resumption of a bullish trend with greater confidence. Both candidates have spoken positively about cryptocurrencies, and clarity on regulation is also expected,” the top manager specified. He noted that such conditions create fertile ground for a new wave of growth in the cryptocurrency market. He stated, “This is completely absurd and violates all demand forecasts before the launch. This is not about dollars from not very smart people. Advisors and institutional investors who continue to gradually explore the market are involved here.” According to him, interest from institutional investors will grow, especially if regulators create favorable conditions for the development and acceptance of cryptocurrencies.

The continuous rise in the value of the first cryptocurrency will benefit only early holders of this asset, while the rest of society will find itself in a state of impoverishment, threatening unity, stability, and democratic foundations. This statement is contained in a report by the European Central Bank (ECB). The bank's economists believe that cryptocurrencies could exacerbate social inequality if the spread of digital assets remains limited. Economists Ulrich Bindseil and Jurgen Schaaf stated that the initial concept of Satoshi Nakamoto, which envisioned using Bitcoin as an international payment system, has failed, resulting in its reorientation as an investment tool. This shift in focus has led Bitcoin to become a subject of speculation rather than a means of exchange, as originally intended. According to the ECB document, users who join the first cryptocurrency later may face losses even without a "burst bubble" scenario. They will benefit solely from attracting new buyers, experts emphasized. This means that the current growth model of cryptocurrency resembles a financial pyramid, where the profits of early participants are secured by subsequent ones. “The acquisition of new Lamborghinis, Rolexes, villas, and stock portfolios by early Bitcoin investors does not contribute to the growth of the economy's productive potential but rather occurs at the expense of reduced consumption and the welfare of those who do not initially own Bitcoin,” the report noted. Econom