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Analysis-Institutional investors may help bitcoin sustain new heights

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Analysis-Institutional investors may help bitcoin sustain new heights
© Reuters. FILE PHOTO: A representation of bitcoin is seen in front of a stock graph and U.S. dollar in this illustration taken, January 24, 2022. REUTERS/Dado Ruvic/File Photo

By Hannah Lang and Suzanne McGee

(Reuters) – As traditional institutions pour money into bitcoin, the cryptocurrency’s latest meteoric rally to a record high may have more legs than in 2021, experts say.

The world’s largest cryptocurrency, notorious for its volatility, touched $69,202 on Tuesday, driven by excitement over new U.S. spot bitcoin exchange-traded funds (ETFs) and expectations the Federal Reserve will begin cutting U.S. interest rates this year.

Since bitcoin has less than two decades as a financial asset, predicting its price trajectory remains extremely challenging. Just months after retail exuberance helped drive bitcoin to its previous record in November 2021 the cryptocurrency crashed, taking half the crypto industry with it.

But more institutions committing long-term money could help the token sustain its high levels this time around, analysts and executives said.

“Traditional institutions were once sitting out; today, they are here in full force as the principal drivers of the crypto bull market,” said Nathan McCauley, CEO of Anchorage Digital, a crypto platform.

In February, for example, software firm MicroStrategy said it had bought about 3,000 bitcoins for $155 million, while social media platform Reddit disclosed it had bought small amounts of bitcoin and ether.

“The market is getting pushed around by some of the crypto industry whales,” said Steve Sosnick, chief strategist at Interactive Brokers (NASDAQ:), adding he expected a short-term pullback in bitcoin’s price as investors take profits.

Another driver of sticky money are 10 new U.S. bitcoin ETFs, which provide a regulated option for traditional institutions or other buyers who may now feel safer investing in the cryptocurrency.

has jumped more than 50% this year alone, with most of those gains coinciding with inflows into the new ETFs. Net flows into the products reached $7.9 billion as of Monday, according to BitMex Research.

Sui Chung, CEO of CF Benchmarks, which is providing the index for six of the ETF, said he knew of some registered investment advisors and other big institutions that were buying into the ETFs, although he declined to name them.

“For institutions, bitcoin’s core appeal is the diversification potential it offers,” he added.

Wealth manager Gerber Kawasaki has invested in BlackRock (NYSE:)’s spot bitcoin ETF via its AdvisorShares ETF, crypto outlet The Block reported last month. Such investors are typically less price sensitive, Bitfinex analysts wrote.

“Any decline following the top of the current cycle could be less drastic than previous downturns. We saw a similar stable trajectory in price after a huge increase following the launch of gold ETFs,” they added.

Indicators that other analysts have used to gauge retail interest in cryptocurrencies, like Google (NASDAQ:) searches, have remained muted compared to 2021 and 2022, according to Google trends.

Trading in CME Micro Bitcoin futures, which at 1/10th of a bitcoin are affordable to wealthier retail investors, jumped from 32,007 on Feb. 27 to nearly 87,000 on Feb. 28, CME data shows.

“If there is a retail frenzy, it started on Feb. 27th,” said Chung.

SUPPLY DYNAMICS

To be sure, Bitcoin just came into existence in 2008 and remains a speculative asset dominated by retail investors. Its short track record makes it hard to predict how it will trade over multiple economic cycles.

In contrast to commodities like gold, it has no economic fundamentals, so there is no reliable way to forecast its price, European Central Bank analysts warned last month.

Still, as with commodities, supply factors are at play.

One unknown is the potential price overhang from bitcoins trapped in bankruptcies that could be liquidated in coming months. As much as $35 billion worth of crypto was locked up in bankruptcies last year, although Reuters could not ascertain how much was in bitcoin.

On the other hand, the upcoming bitcoin “halving” is set to further reduce supply, ultimately capped at 21 million bitcoins. That process last occurred in 2020, meaning there is more pressure on bitcoin’s supply compared to the rally in 2021.

That could push prices higher, said Zach Pandl, managing director of research at Grayscale Investments, which operates one of the spot bitcoin ETFs.

“Bitcoin demand is colliding with increasingly tight supply,” he added.

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Palantir, Anduril join forces with tech groups to bid for Pentagon contracts, FT reports

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(Reuters) – Data analytics firm Palantir Technologies (NASDAQ:) and defense tech company Anduril Industries are in talks with about a dozen competitors to form a consortium that will jointly bid for U.S. government work, the Financial Times reported on Sunday.

The consortium, which could announce agreements with other tech groups as early as January, is expected to include SpaceX, OpenAI, autonomous shipbuilder Saronic and artificial intelligence data group Scale AI, the newspaper said, citing several people with knowledge of the matter.

“We are working together to provide a new generation of defence contractors,” a person involved in developing the group told the newspaper.

The consortium will bring together the heft of some of Silicon Valley’s most valuable companies and will leverage their products to provide a more efficient way of supplying the U.S. government with cutting-edge defence and weapons capabilities, the newspaper added.

Palantir, Anduril, OpenAI, Scale AI and Saronic did not immediately respond to a Reuters request for comment. SpaceX could not be immediately reached for a comment.

Reuters reported earlier this month that President-elect Donald Trump’s planned U.S. government efficiency drive involving Elon Musk could lead to more joint projects between big defense contractors and smaller tech firms in areas such as artificial intelligence, drones and uncrewed submarines.

Musk, who was named as a co-leader of a government efficiency initiative in the incoming government, has indicated that Pentagon spending and priorities will be a target of the efficiency push, spreading anxiety at defense heavyweights such as Boeing (NYSE:) , Northrop Grumman (NYSE:) , Lockheed Martin (NYSE:) and General Dynamics (NYSE:) .

Musk and many small defense tech firms have been aligned in criticizing legacy defense programs like Lockheed Martin’s F-35 fighter jet while calling for mass production of cheaper AI-powered drones, missiles and submarines.

Such views have given major defense contractors more incentive to partner with emerging defense technology players in these areas.

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Weakened Iran could pursue nuclear weapon, White House’s Sullivan says

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By Simon Lewis (JO:)

(Reuters) -The Biden administration is concerned that a weakened Iran could build a nuclear weapon, White House National Security Adviser Jake Sullivan said on Sunday, adding that he was briefing President-elect Donald Trump’s team on the risk.

Iran has suffered setbacks to its regional influence after Israel’s assaults on its allies, Palestinian Hamas and Lebanon’s Hezbollah, followed by the fall of Iran-aligned Syrian President Bashar al-Assad.

Israeli strikes on Iranian facilities, including missile factories and air defenses, have reduced Tehran’s conventional military capabilities, Sullivan told CNN.

“It’s no wonder there are voices (in Iran) saying, ‘Hey, maybe we need to go for a nuclear weapon right now … Maybe we have to revisit our nuclear doctrine’,” Sullivan said.

Iran says its nuclear program is peaceful, but it has expanded uranium enrichment since Trump, in his 2017-2021 presidential term, pulled out of a deal between Tehran and world powers that put restrictions on Iran’s nuclear activity in exchange for sanctions relief.

Sullivan said that there was a risk that Iran might abandon its promise not to build nuclear weapons.

“It’s a risk we are trying to be vigilant about now. It’s a risk that I’m personally briefing the incoming team on,” Sullivan said, adding that he had also consulted with U.S. ally Israel.

Trump, who takes office on Jan. 20, could return to his hardline Iran policy by stepping up sanctions on Iran’s oil industry.

© Reuters. FILE PHOTO: Iranian flag flies in front of the UN office building, housing IAEA headquarters, in Vienna, Austria, May 24, 2021. REUTERS/Lisi Niesner/File Photo

Sullivan said Trump would have an opportunity to pursue diplomacy with Tehran, given Iran’s “weakened state.”

“Maybe he can come around this time, with the situation Iran finds itself in, and actually deliver a nuclear deal that curbs Iran’s nuclear ambitions for the long term,” he said.

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Ukraine says Russian general deliberately targeted Reuters staff in August missile strike

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(Reuters) -Ukraine’s security service has named a Russian general it suspects of ordering a missile strike on a hotel in eastern Ukraine in August and said he acted “with the motive of deliberately killing employees of” Reuters.

The Security Service of Ukraine (SBU) said in a statement on Friday that Colonel General Alexei Kim, a deputy chief of Russia’s General Staff, approved the strike that killed Reuters safety adviser Ryan Evans and wounded two of the agency’s journalists on Aug. 24.

In a statement posted on Telegram messenger the SBU said it was notifying Kim in absentia that he was an official suspect in its investigation into the strike on the Sapphire Hotel in Kramatorsk, a step in Ukrainian criminal proceedings that can later lead to charges.

In a separate, 15-page notice of suspicion, in which the SBU set out findings from its investigation, the agency said that the decision to fire the missile was made “with the motive of deliberately killing employees of the international news agency Reuters who were engaged in journalistic activities in Ukraine”.

The document, which was published on the website of the General Prosecutor’s Office on Friday, said that Kim had received intelligence that Reuters staff were staying in Kramatorsk. It added that Kim would have been “fully aware that the individuals were civilians and not participating in the armed conflict”.

The Russian defence ministry did not respond to a request for comment on the SBU’s findings and has not replied to previous questions about the attack. The Kremlin also did not respond to a request for comment. Kim did not reply to messages sent by Reuters to his mobile telephone seeking comment about the SBU’s statement and whether the strike deliberately targeted Reuters staff.

The SBU did not provide evidence to support its claims, nor say why Russia targeted Reuters. In response to questions from the news agency, the security agency declined to provide further details, saying its criminal investigation was still under way and it was therefore not able to disclose such information.

Reuters has not independently confirmed any of the SBU’s claims.

Reuters said on Friday: “We note the news today from the Ukrainian security services regarding the missile attack on August 24, 2024, on the Sapphire Hotel in Kramatorsk, a civilian target more than 20 km from Russian-occupied territory.”

“The strike had devastating consequences, killing our safety adviser, Ryan Evans, and injuring members of our editorial team. We continue to seek more information about the attack. It is critically important for journalists to be able to report freely and safely,” the statement said.

Reuters declined to comment further on the allegation that its staff were deliberately targeted.

The SBU statement said Kim had been named a suspect under two articles of the Ukrainian criminal code: waging an aggressive war and violating the laws and customs of war.

“It was Kim who signed the directive and gave the combat order to fire on the hotel, where only civilians were staying,” it said.

Evans, a 38-year-old former British soldier who had worked as a safety adviser for Reuters since 2022, was killed instantly in the strike.

The SBU statement gave some details about how the strike had occurred, according to its investigation.

“To carry out the attack, the Russian colonel general involved one of his subordinate missile forces units,” the Ukrainian agency said, adding that the strike was carried out with an Iskander-M ballistic missile.

The SBU did not identify the specific unit.

© Reuters. FILE PHOTO: Reuters safety advisor Ryan Evans holds a cat during a news assignment, as Russia's attack on Ukraine continues, during intense shelling in Kramatorsk, Ukraine, December 26, 2022. REUTERS/Clodagh Kilcoyne/File Photo

Ivan Lyubysh-Kirdey, a videographer for the news agency who was in a room across the corridor, was seriously wounded. Kyiv-based text correspondent Dan Peleschuk was also injured.

The remaining three members of the Reuters team escaped with minor cuts and scratches.

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