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NEW YORK (REUTERS) – Bitcoin hit a record high on Tuesday (February 9), approaching the $ 50,000 mark (Singapore $ 66,300), basking in the glow of Elon Musk-led Tesla investment in the cryptocurrency in which Investors believed it could become a mainstream asset class.
The most popular cryptocurrency has gained 1,150 percent from its March 2020 lows, as institutional investors sought alternative investments and retail traders jumped on the wave. It was trading at a few hundred dollars just five years earlier. Glassnode, which provides insights on blockchain data, said in its latest report that the limited supply of bitcoin suggested more gains for the virtual asset.
Bitcoin’s liquid supply continues to decline, as investors increasingly acquire and “store” the asset for the long term. “Hodl” is crypto jargon for the act of an investor holding the asset rather than selling it.
Currently, around 78 percent of the bitcoins issued are lost or “piled up.” This leaves less than four million bitcoins to be shared among future market participants, including large institutional investors such as PayPal, Square, S&P 500 companies and exchange-traded funds, Glassnode said.
On Monday, bitcoin jumped 20 percent after Tesla announced it had a $ 1.5 billion investment and would eventually take the cryptocurrency as payment for its cars. That was his biggest daily increase in more than three years.
It rose to a high of $ 48,216.09, almost enough to buy one of the best-selling Tesla vehicles, the Tesla Model Y SUV. Ethereum, the rival cryptocurrency, hit a record high of $ 1,825.36 on Tuesday.
Anticipation of Musk’s acceptance of the coin as payment for Tesla cars makes analysts see this as a big change, as companies and large investment houses follow small traders on the asset.
Marc Chandler, chief market strategist at Bannockburn Global Forex, is unconvinced and said that Bitcoin remains a speculative vehicle.
“The fact that it attracts some institutional investors or even some companies does not change this fact. Bitcoin does not have a profit stream that can be modeled,” said Chandler. “They have no breakdown or replacement cost. There is no intrinsic value. They have no use value as economists understand it.”
Bitcoin’s volatility has also been a stumbling block for some serious investors and a sticking point for using it for transactions. Observed volatility, or daily price changes measured in terms of bitcoin closing prices over the past 90 days, was 72%, compared to 16% for the S&P 500 stock index and 6% for the euro currency.
Furthermore, given that the value of bitcoin tripled in the past three months, analysts raised questions about how its volatility would affect someone buying a Tesla car in bitcoin.
“Unless the price of bitcoin stabilizes, the price of bitcoin falls dramatically and you end up winning a Tesla in a lottery, or its price triples and you end up paying for your Tesla too expensive,” said Ipek Ozkardeskaya, senior analyst at Swissquote Bank. .
“Earliest phases”
Billionaire Musk has long been a fan of cryptocurrencies, he has talked about them online, but Tesla’s investment in hard currency was a surprise that has set a rocket ship in the sector.
“Right now, it still seems like a bit of a leisurely quest, acquiring bitcoin. But I think by the end of the year, with the current rate of institutional inflow, it will become clear that this is a once on Landgrab for a lifetime,” said Jehan Chu, founder and managing partner of Kenetic, which invests in blockchain-related companies.
Still, in the January BofA survey of fund managers, bitcoin topped the list of “busiest” trades. Another survey, conducted by Deutsche Bank, warned of price bubbles in the cryptocurrency.
Bitcoin is already up 67 percent this year, on top of a 300 percent rally last year, as investors seek alternatives to the dollar due to 0 percent interest rates from the US Federal Reserve. The dollar slipped against most currencies on Tuesday.
In the ongoing digital wave, central banks and regulators, particularly in China, are also beginning to embrace issuing their own digital currencies for everyday use, in a major break with the conventional workings of global finance.
Beijing will issue 10 million yuan (S $ 2.06 million) in digital currency for residents that can be used during the Lunar New Year holidays starting Thursday, national media reported.
However, Vitor Constancio, a former vice president of the European Central Bank, wrote on Twitter that lawmakers should focus on regulating cryptocurrencies and developing digital currencies only if they help banks in their role of enabling credit creation.
The Tesla news-led rally extended beyond bitcoin. Shares of companies that provide bitcoin trading platforms and the technology to “mine” the cryptocurrency rose in China, South Korea and Australia, and large computer chip companies such as SK Hynix also rose.
MicroStrategy, a business intelligence software firm and a bitcoin buyer, is up 215% so far this year, after posting 172% gains in 2020.
Even dogecoin, a cryptocurrency with a dog as a symbol, has seen its value supercharged after Musk mentioned it on Twitter. It is up 13 percent in the last day, according to CoinMarketCap.
“It really has become popular culture and mainstream,” Chu said. “People are no longer asking ‘Why should I invest in bitcoin?’ They have to defend why they are not. “
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