Bitcoin rose above $50 000 (about R733 000) yesterday to a new record high, building on a rally fuelled by signs that the world's biggest cryptocurrency is gaining acceptance among mainstream investors.
Bitcoin hit a new high of $50 602, and was last up 3.3 percent at $49 537. It has risen around 72 percent so far this year, with most of the gains coming after electric carmaker Tesla said it had bought $1.5 billion in Bitcoin.
The move by Tesla, which also said it would accept Bitcoin as payment, was the latest in a string of large investments that have vaulted Bitcoin from the fringes of finance to company balance sheets and Wall Street, with US firms and traditional money managers starting to buy the coin.
Such mainstream moves, some investors said, could help bitcoin become a widespread means of payment – something it has so far failed to achieve at any large scale – and in turn further bolster prices.
“The more people that adapt it and use it as money, then the greater the chances of it perhaps being taken on board as a mainstream currency,” said Russ Mould, investment director of AJ Bell. “That would feed further speculative interest.”
The rush in 2021 by retail and institutional investors comes on top of a 300 percent rise last year as investors searched for high-yielding assets and alternatives the dollar amid rock-bottom or even negative interest rates across the globe.
The meteoric rise of Bitcoin, which traded at a few hundred dollars only five years earlier, has also led major investment banks to warn of a speculative bubble.
Bitcoin's rise “blows the doors off prior bubbles,” Bank of America said last month.
Even as Bitcoin laps into the mainstream, cryptocurrencies remain subject to patchy oversight around the world, with the lack of regulatory clarity and associations with crime keeping many larger investors leery of exposure.
US Treasury Secretary Janet Yellen and European Central Bank President Christine Lagarde both called last month for tighter oversight of Bitcoin due to concerns over its use for criminal activities such as money laundering.
Some believe the extreme volatility is a cause for concern.
“We feel that, due to its volatility, bitcoin lacks many of the established qualities that make up ‘money', such as being a stable store of value and unit of account,” said George Lagarias, chief economist at Mazars.
Also boosting Bitcoin's rise have been analyst suggestions that its limited supply of 21 million could boost further gains for the virtual asset.
A narrative of Bitcoin becoming “digital gold” has gained traction as investors predict looming inflation with central banks and governments opening the stimulus taps to counter Covid-19.
St Louis Federal Reserve President James Bullard told CNBC in an interview yesterday that Bitcoin's claim to be a rival to gold would not threaten the dollar's dominance. “Investors want a safe haven, they want a stable store value and then they want to conduct their investments in that currency,” he said.
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