Bitcoin broke new records on Monday, hitting an all-time high above US$126,000, just 48 hours after surpassing the US$125,000 mark on Sunday.
Justin Arzadon, head of digital assets at Betashares, said the ongoing strength in Bitcoin and Ethereum prices has largely been fuelled by institutional adoption.
“Last week’s net inflows into crypto ETFs were further evidence of this trend. Expectations of Fed cuts, a weaker US dollar and improving regulatory clarity are all adding support to the current rally,” he said.
Since the beginning of the year, Australian cryptocurrency ETFs have attracted $371 million in net inflows. The most recent data shows $989 million in funds under management – figures Betashares believes pushed past $1 billion in September.
“Bitcoin’s rally from US$114,000 to over US$126,000 in the past week has coincided with the US government shutdown. Investors are increasingly viewing bitcoin as a hedge during periods of political and fiscal stress – similar to how gold has historically behaved,” Arzadon added.
However, Betashares warns that cryptocurrencies should remain a small component within a diversified portfolio that includes core holdings in equities and bonds.
“Given the inherent volatility in crypto, investing strategies like dollar-cost averaging and rebalancing are more important than ever to ensure investors do not over-allocate to the asset class,” Arzadon said.
Meanwhile, Monochrome’s Bitcoin ETF, “IBTC”, has crossed a significant threshold, surpassing $200 million in assets under management.
Zerocap analyst Emir Ibrahim said spot bitcoin ETFs continue to see strong inflows.
“[ETFs] pulled in over US$3.2 billion for the week, with BlackRock’s iShares fund alone accounting for US$524 million in a single day,” Ibrahim said.
He also noted that the long-awaited US$1.6 billion in repayments to FTX creditors has begun entering the market, adding liquidity and boosting investor risk appetite across major cryptocurrencies.
Ibrahim pointed out that October has historically been one of bitcoin’s strongest months, with average gains of 28 per cent since 2013.
“With macro uncertainty continuing to feed the ‘store of value’ narrative and current derivative flows leaning long, any short-term pullback looks likely to be absorbed quickly. The set-up into the year-end remains firmly constructive,” he said.
“This week’s FOMC minutes and a full slate of Fed speakers will test how far the ‘data-dependent’ Fed can guide policy without fresh data. Markets will be watching for any cracks in the higher-for-longer stance.”
AMP chief economist Shane Oliver said he wasn’t surprised by bitcoin’s recent price surge, attributing it to a confluence of macroeconomic concerns driving investor interest in alternative assets.
“It’s been driven by similar things as gold: concern about high public debt levels in various countries, concern that the US government shutdown highlights the dysfunctionality of US politics, worries that inflation will take off, search for a safe haven in the face of various geopolitical risks," Oliver told InvestorDaily.
He also cited the weakening US dollar and rising expectations of further Fed rate cuts as key factors.
“Much of this relates to a concern that paper currencies like the US dollar will be further ‘debased’,” Oliver said. “If central banks stick to their inflation targets, then the risk [of currency debasement] is low, but not insignificant, which is why some are seeking protection against it.”
Institutional acceptance of bitcoin continues to grow. In a notable move, Morgan Stanley, one of Wall Street’s more conservative players, has formally endorsed cryptocurrency as part of a balanced portfolio.
“It’s another example of how bitcoin is becoming more accepted at an institutional level,” Oliver said in response.
A special report from Morgan Stanley’s Global Investment Committee (GIC) recommends that clients allocate 2–4 per cent of their portfolios to cryptocurrency, with a particular focus on bitcoin.
“The GIC recommends that financial advisers and clients rebalance multi-asset portfolios with cryptocurrency allocations on a regular, periodic basis: preferably quarterly or at least annually. Such rebalancing will dampen the potential for swelling positions, which could mean outsized portfolio-level volatility and cryptocurrency risk contributions in periods of macro and market stress,” the report said.
Morgan Stanley described cryptocurrency as a “speculative and increasingly popular asset class”, noting that not all investors will choose to engage with it.
“We place the emerging asset class within real assets and focus our commentary here primarily on bitcoin, which we consider a scarce asset, akin to digital gold,” the report said.
The firm acknowledged that while cryptocurrency has delivered outsized returns with declining volatility in recent years, it could still experience heightened volatility and stronger correlations with traditional assets during times of macroeconomic stress.
“Given its limited history, we have prepared a series of forward-looking simulations to stress-test stand-alone and portfolio allocations to cryptocurrency, which highlight the potential for greater drawdowns, swelling allocation levels, and higher volatility and rising risk shares,” the report said.
The world’s largest asset manager, BlackRock, currently recommends a 1–2 per cent bitcoin allocation within a traditional 60/40 portfolio, warning that exceeding this could disproportionately raise overall portfolio risk.
Meanwhile, new research from JP Morgan suggests bitcoin may be undervalued relative to gold, with the investment bank now forecasting the asset to reach US$165,000 by the end of 2025.
Analysts highlighted that bitcoin’s volatility relative to gold has dropped to historic lows, making it more appealing to institutional investors as both a store of value and an alternative to gold.
