Bitcoin’s rally above US$15,000 has reignited debate over whether the cryptocurrency is so-called digital gold or a perilously risky bet, as investors grapple with the COVID-19 pandemic.
The world’s most popular virtual unit has gained more than 30 percent in value in almost three weeks up to Friday, taking it close to its December 2017 peak, when it reached nearly US$20,000.
After a rollercoaster ride on markets since then, it began its latest meteoric rise on Oct. 21, after US online payments provider PayPal Holdings Inc announced that it would enable account holders to use cryptocurrency.
Photo: Reuters
“It is the validation of a market which was still relatively uncertain a few years ago,” Paris-based crypto-assets association ADAN president Simon Polrot said.
After its price surpassed US$1,000 for the first time in 2013, bitcoin has increasingly attracted the attention of financial institutions.
The more recent arrival of big players in the virtual market, such as PayPal and Mastercard Inc, is “very important signals” solidifying that trend, Polrot said.
The US Federal Reserve and European Central Bank are holding consultations on the possible launch of their own virtual currencies, while the People’s Bank of China in April started experimenting with digital payments in four cities.
Investment banking giant JPMorgan Chase & Co has joined industry players in the increasing optimism around bitcoin.
After PayPal’s announcement, analysts at the bank compared the cryptocurrency to gold.
“Bitcoin could compete more intensely with gold as an ‘alternative’ currency over the coming years given that millennials will become over time a more important component of investors’ universe,” they said.
They said that the total capitalization of the cryptocurrency market is 10 times lower than gold, with some speculating it could steadily close that gulf.
That viewpoint represents a significant shift, given JPMorgan chief Jamie Dimon described bitcoin as a “fraud” two years ago.
On Thursday, its price leaped nearly 9 percent and gold rallied 2.45 percent, as the US election impacted the market.
The rises sparked fresh comparisons of the two assets.
“Crypto could constitute a form of safe haven in a context where confidence in fiat money is a little undermined,” Polrot said.
As with gold, bitcoin could benefit as central banks gush out trillions in stimulus support to counter the devastating effects of the COVID-19 pandemic, potentially diluting the value of their currencies.
Both gold and bitcoin are “mined” — virtually, by computer users, in the cryptocurrency’s case — and have a finite supply, in contrast to hard cash printed in unlimited amounts by central banks.
Charles Morris, whose ByteTree.com specializes in cryptocurrencies, said bitcoin is “very much a growth asset, behaving like a tech stock.”
Like gold, some people in Iran, Venezuela and Turkey have in recent years used cryptocurrency to shield their savings from runaway inflation, he said.
However, others point to the highly volatile and speculative nature of cryptocurrencies.
“There is no room for bitcoin in a serious forex portfolio,” said a London trader who asked to remain anonymous, noting the unit had lost a quarter of its value in March alone before resuming its rally more recently. “That would be a catastrophe for a forex trader — we use gold to balance our portfolio.”
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