Bitcoin is closing in on a market value of US$1 trillion, a surge that is helping cryptocurrency returns far outstrip the performance of more traditional assets such as stocks and gold.
The largest token has added more than US$415 billion of value this year to about US$956 billion, data compiled by Bloomberg showed. The Bloomberg Galaxy Crypto Index, which includes bitcoin and four other coins, has more than doubled.
Speculators, corporate treasurers and institutional investors are thought to have stoked bitcoin’s volatile ascent. Crypto believers are dueling with skeptics for the dominant narrative around the climb: The former see an asset being embraced for its ability to hedge risks such as inflation, while the latter sense a precarious mania riding atop waves of monetary and fiscal stimulus.
FOMO — fear of missing out — might be at play, said Shane Oliver, head of investment strategy with AMP Capital Investors Ltd in Sydney, adding that “in times of easy money this gets magnified and it’s partly what’s driving the current interest.”
Bitcoin traded at about US$51,300 as of 1:30pm yesterday in Hong Kong after quintupling in the past year. The crypto index’s performance towers over stocks, gold, commodities and bonds this year.
This month, Tesla Inc disclosed a US$1.5 billion investment and MicroStrategy Inc boosted a sale of convertible bonds to US$900 million to buy even more of the token. That brought the coin closer to corporate America.
“If companies’ fundamentals are going to become closely tied to movements in bitcoin because they’ve suddenly become speculators on the side, we’re going to be in bubble territory before you know it,” said Craig Erlam, senior market analyst with Oanda Europe Ltd.
Tesla CEO Elon Musk posted a somewhat cryptic message on Twitter yesterday that appeared in part to defend the company’s action, saying that bitcoin “is simply a less dumb form of liquidity than cash,” while adding that the electric vehicle maker’s decision is not “directly reflective of my opinion.”
The “long bitcoin” trade is seen as among the most crowded in the world alongside technology exposure and US dollar shorts, according to this month’s edition of Bank of America’s global fund manager survey.
If bitcoin “falls out of favor — for example due to government regulation or investors just moving on to the next new thing — then it could quickly plunge,” Oliver said.
Musk called Tesla’s bitcoin bet an “adventurous enough” investment for the company, after one of the industry’s loudest acolytes called out the billionaire’s advocacy of lesser-known dogecoin.
“Having some bitcoin, which is simply a less dumb form of liquidity than cash, is adventurous enough for an S&P500 company,” Musk wrote on Twitter, in response to a Bloomberg TV interview with Binance Holdings Ltd CEO Zhao Changpeng (趙長鵬).
Tesla took the corporate world and the cryptocurrency space by storm when it announced this month it had put US$1.5 billion of cash into bitcoin. That prompted a surge in bitcoin’s price, and has fueled talk about the risks and benefits of adding cryptocurrencies to corporate balance sheets.
Zhao had said in the interview that he is surprised Musk is a fan of dogecoin, which has outperformed bitcoin this year. Musk, the founder of Tesla and one of the world’s richest men, has written online multiple times about the Shiba Inu-themed cryptocurrency started as a joke in 2013.
Binance recently added dogecoin futures on its platform to satisfy new liquidity demand.
Zhao wondered in his interview why Tesla opted to buy bitcoin if Musk is so “gung-ho” on dogecoin. His remarks prompted Musk to explain the move by Tesla, which is also planning to accept bitcoin as a payment method.
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