Bitcoin has soared to new heights in spite of an 800 percent rise in the dollar price of the cryptocurrency last year as new institutional investors enter the market. Photo: File
Bitcoin has soared to new heights in spite of an 800 percent rise in the dollar price of the cryptocurrency last year as new institutional investors enter the market. Photo: File

Bitcoin price soaring to new heights as institutional investors enter market

By Edward West Time of article published Jan 11, 2021

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CAPE TOWN - BITCOIN has soared to new heights in spite of an 800 percent rise in the dollar price of the cryptocurrency last year as new institutional investors enter the market.

Bitcoin traded at $38 413.10 (R586 961) on Friday morning, just marginally below the more than $40 000 that it traded at days before.

The cryptocurrency increased more than 800 percent last year, after rising from around R4 000 in March 2020, and ended the year above $36 500, according to the Coindesk website.

On Wednesday it rose to a new high of more than $40 394. The price remains volatile however – for instance, its US dollar price fell 17 percent last Monday.

The total market value of cryptocurrencies climbed beyond $1 trillion for the first time on Thursday. Bitcoin accounts for some two-thirds of cryptocurrency market value, followed by Ether at about 13 percent.

Luno website – a Naspers-backed global cryptocurrency company and South Africa’s biggest cryptocurrency exchange – said Bitcoin, dubbed a new “global currency” by some, traded at R593 834 on Friday, after rising 365 percent from R127 641 early in January 2020.

Bitcoin, launched in 2009, was priced at around R1 000 in 2013.

There is no standard global price for Bitcoin as it isn’t pegged to any currency, country or Bitcoin platform, and so, for instance, the price on Google shows an estimated international price.

Luno general manager for Africa Marius Reitz said one of the reasons for the higher price was the people behind the investments compared to just a few years ago.

Traditionally, investors in Bitcoin had been the enthusiasts – individual investors who banked on the currency as the future of money.

“We are now seeing more institutional investment come into play, with greater investments and interest in crypto from some of the biggest names in the business – Facebook, PayPal, Square, JP Morgan,” Reitz said.

“This is going some way to allaying the doubts that have previously undermined Bitcoin.”

He said Bitcoin had consistently increased in value in 2020, rather than increase in one sharp spike, which had set the price up “extremely well for 2021.”

Bitcoin operates on a model of deflation, meaning gradually fewer Bitcoin are released until supply stops when 21 million of the coins are released. There are currently around 18.5 million Bitcoin in circulation.

This is different from fiat currencies which use an inflationary model, where central banks print extra units of currency at will.

“We are seeing more economies around the world doing this and weakening the value of their own currencies, so Bitcoin will continue to be an appealing option for investors who consider it a hedge against inflation,” Reitz said.

He warned, however, that further price volatility was expected.

At the start of the Covid-19 panic, crypto and fiat markets followed similar trajectories during the global selloff. A shift followed and the price of Bitcoin began to move in the same direction as gold, bolstering a view that Bitcoin was an emerging safe haven asset and decoupling from the traditional market, said Reitz.

“This parabolic move upwards, with normally staid Wall Street firms including JP Morgan calling $146 000 as their price target for Bitcoin, and Guggenheim called $400 000, feels like it has a long way to go before exhausting,” Guy Hirsch, MD for US at eToro, told Bloomberg News.

“It wouldn’t be all that surprising to see $100 000 at some point this year, given the current momentum,” Hirsch said.

The soaring price comes at a time when thousands of South Africans are believed to have lost billions of rand in cryptocurrency investment company Mirror Trading International (MTI).

This in spite of warnings several months ago about investing in MTI from US and South African financial services regulatory authorities.

BUSINESS REPORT

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