Bitcoin is closing in on a market value of US$1-trillion, a surge that’s helping cryptocurrency returns far outstrip the performance of more traditional assets like stocks and gold.
The largest token has added more than $415-billion of value in 2021 to about $956-billion. 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 duelling with sceptics 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 — may be at play, said Shane Oliver, head of investment strategy with AMP Capital Investors 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 around $51 300 as of 1.30pm on Friday in Hong Kong after quintupling in the past year. The crypto index’s performance towers over stocks, gold, commodities and bonds in 2021.
This month, Tesla disclosed a $1.5-billion investment and MicroStrategy boosted a sale of convertible bonds to $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.
Tesla CEO Elon Musk posted a somewhat cryptic tweet on Friday that appeared in part to defend the company’s action, saying bitcoin “is simply a less dumb form of liquidity than cash” while adding that the electric vehicle maker’s decision isn’t “directly reflective of my opinion”.
The “long bitcoin” trade is seen as among the most crowded in the world alongside technology exposure and dollar shorts, according to the February edition of Bank of America’s global fund manager survey.
AMP’s Oliver said if bitcoin “falls out of favour — for example due to government regulation or investors just moving on to the next new thing — then it could quickly plunge”. — Reported by Eric Lam, (c) 2021 Bloomberg LP