Bitcoin powered to a record high on Tuesday, approaching the US$50,000 mark, basking in the afterglow of Elon Musk-led Tesla’s investment in the cryptocurrency that had investors believing it may become a mainstream asset class.
The most popular cryptocurrency has gained 1,150 per cent since its March 2020 lows, as institutional investors searched for alternative investments and retail traders rode the wave. It traded at a few hundred dollars only five years earlier. Glassnode, which provides insight on blockchain data, said in its latest report that bitcoin’s limited supply suggested further gains for the virtual asset.
Bitcoin’s liquid supply is continuing to decrease, as investors increasingly acquire and “hodl” the asset for the long term. “Hodl” is crypto slang for the act of an investor holding the asset instead of selling it.
Currently, around 78 per cent of issued bitcoin are either lost or being “hodled.” This leaves less than four million bitcoins to be shared among future market entrants – including large institutional investors such as PayPal, Square, S&P 500 companies, and exchange traded funds, Glassnode said.
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On Monday, bitcoin leapt 20 per cent after Tesla announced it had a US$1.5 billion investment and that it would eventually take the cryptocurrency as payment for its cars. That was its largest daily rise in more than three years.
It climbed to a peak of US$48,216.09 – almost enough to buy one of the best-selling Tesla vehicles, the Tesla Model Y SUV. Rival cryptocurrency ethereum struck a record high of US$1,825.36 on Tuesday.
Musk’s foreseeing acceptance of the currency as payment for Tesla cars has analysts reckoning this is a large shift as companies and big investment houses follow small traders into the asset.
Marc Chandler, chief market strategist at Bannockburn Global Forex, remains unconvinced and said bitcoin remains a speculative vehicle.
“The fact that it draws some institutional investors or even some companies does not change this fact. Bitcoin has no earnings stream that can be modeled,” said Chandler. “It has no break-up or replacement cost. There is no intrinsic value. They have no use-value the way economists understand it.”
Bitcoin’s volatility has also been a hindrance for some serious investors and a sticking point in using it for transactions. Realized volatility, or daily price swings measured in terms of closing prices for bitcoin over the past 90 days, was at 72 per cent, compared with 16 per cent for the S&P 500 stocks index and six per cent for the euro currency.
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What’s more, with bitcoin’s value tripling in the past three months, analysts raised questions over how its volatility would affect someone buying a Tesla car in bitcoin.
“Unless the price of bitcoin stabilizes, either bitcoin’s price falls drastically and you end up having won a Tesla in a lottery, or its price triples and you end up paying your Tesla far too expensive,” said Ipek Ozkardeskaya, senior analyst at Swissquote Bank.
‘EARLIEST PHASES’
Billionaire Musk has long been a cryptocurrency fan – he has talked them up online – but Tesla’s hard currency investment came as a surprise that has put a rocket under the sector.
“Right now, it still seems like a bit of a leisurely pursuit, to acquire bitcoin. But I think by the end of the year, with the current rate of institutional flow inbound, it will become clear that this is a once-in-a-lifetime landgrab,” said Jehan Chu, founder and managing partner at Kenetic, which invests in blockchain-related companies.
Still, in BofA’s January fund manager survey, bitcoin topped the list of “most crowded” trades. Another survey, by Deutsche Bank, warned of price bubbles in the cryptocurrency.
Bitcoin is already up 67 per cent this year, on top of a 300 per cent rally last year, as investors search for alternatives to the dollar because of the U.S. Federal Reserve’s 0 per cent interest rates. The dollar slid against most currencies on Tuesday.
In the ongoing digital wave, central bankers and regulators, particularly in China, are also starting to embrace issuing their own digital currencies for everyday use, in a major break from the conventional workings of global finance.
Beijing will issue 10 million yuan ($1.55 million) worth of digital currency to residents that can be used during the Lunar New Year holiday starting on Thursday, domestic media reported.
However, Vitor Constancio, former vice-president of the European Central Bank, wrote on Twitter that policymakers should focus on regulating cryptocurrencies and develop digital currencies only if they will help banks in their role of enabling credit creation.
The Tesla news-led rally stretched beyond bitcoin. Shares of companies that provide trading platforms for bitcoin and the technology to “mine” the cryptocurrency surged in China, South Korea, and Australia, and big computer-chip making companies such as SK Hynix also rose.
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MicroStrategy Inc., a business intelligence software firm and a bitcoin buyer, has climbed 215 per cent so far this year, after posting gains of 172 per cent in 2020.
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Even dogecoin, a cryptocurrency with a dog as its symbol, has seen its value turbocharged after Musk mentioned it on Twitter. It has jumped 13 per cent in the past day, according to CoinMarketCap.
“It’s really become popular culture and mainstream,” Chu said. “People are no longer asking ‘Why should I invest in bitcoin?’ They’re having to defend why they’re not.” ($1 = 6.4493 Chinese yuan)
(Reporting by Gertrude Chavez-Dreyfuss; Additional reporting by Tom Westbrook in Singapore, Thyagaraju Adinarayan in London, and Stanley White in Singapore; Editing by Dan Grebler)
TORONTO – Canada’s main stock index was down more than 200 points in late-morning trading, weighed down by losses in the technology, base metal and energy sectors, while U.S. stock markets also fell.
The S&P/TSX composite index was down 239.24 points at 22,749.04.
In New York, the Dow Jones industrial average was down 312.36 points at 40,443.39. The S&P 500 index was down 80.94 points at 5,422.47, while the Nasdaq composite was down 380.17 points at 16,747.49.
The Canadian dollar traded for 73.80 cents US compared with 74.00 cents US on Thursday.
The October crude oil contract was down US$1.07 at US$68.08 per barrel and the October natural gas contract was up less than a penny at US$2.26 per mmBTU.
The December gold contract was down US$2.10 at US$2,541.00 an ounce and the December copper contract was down four cents at US$4.10 a pound.
This report by The Canadian Press was first published Sept. 6, 2024.
TORONTO – Canada’s main stock index was up more than 150 points in late-morning trading, helped by strength in technology, financial and energy stocks, while U.S. stock markets also pushed higher.
The S&P/TSX composite index was up 171.41 points at 23,298.39.
In New York, the Dow Jones industrial average was up 278.37 points at 41,369.79. The S&P 500 index was up 38.17 points at 5,630.35, while the Nasdaq composite was up 177.15 points at 17,733.18.
The Canadian dollar traded for 74.19 cents US compared with 74.23 cents US on Wednesday.
The October crude oil contract was up US$1.75 at US$76.27 per barrel and the October natural gas contract was up less than a penny at US$2.10 per mmBTU.
The December gold contract was up US$18.70 at US$2,556.50 an ounce and the December copper contract was down less than a penny at US$4.22 a pound.
This report by The Canadian Press was first published Aug. 29, 2024.
The crypto market has recently experienced a significant downturn, mirroring broader risk asset sell-offs. Over the past week, Bitcoin’s price dropped by 24%, reaching $53,000, while Ethereum plummeted nearly a third to $2,340. Major altcoins also suffered, with Cardano down 27.7%, Solana 36.2%, Dogecoin 34.6%, XRP 23.1%, Shiba Inu 30.1%, and BNB 25.7%.
The severe downturn in the crypto market appears to be part of a broader flight to safety, triggered by disappointing economic data. A worse-than-expected unemployment report on Friday marked the beginning of a technical recession, as defined by the Sahm Rule. This rule identifies a recession when the three-month average unemployment rate rises by at least half a percentage point from its lowest point in the past year.
Friday’s figures met this threshold, signaling an abrupt economic downshift. Consequently, investors sought safer assets, leading to declines in major stock indices: the S&P 500 dropped 2%, the Nasdaq 2.5%, and the Dow 1.5%. This trend continued into Monday with further sell-offs overseas.
The crypto market’s rapid decline raises questions about its role as either a speculative asset or a hedge against inflation and recession. Despite hopes that crypto could act as a risk hedge, the recent crash suggests it remains a speculative investment.
Since the downturn, the crypto market has seen its largest three-day sell-off in nearly a year, losing over $500 billion in market value. According to CoinGlass data, this bloodbath wiped out more than $1 billion in leveraged positions within the last 24 hours, including $365 million in Bitcoin and $348 million in Ether.
Khushboo Khullar of Lightning Ventures, speaking to Bloomberg, argued that the crypto sell-off is part of a broader liquidity panic as traders rush to cover margin calls. Khullar views this as a temporary sell-off, presenting a potential buying opportunity.
Josh Gilbert, an eToro market analyst, supports Khullar’s perspective, suggesting that the expected Federal Reserve rate cuts could benefit crypto assets. “Crypto assets have sold off, but many investors will see an opportunity. We see Federal Reserve rate cuts, which are now likely to come sharper than expected, as hugely positive for crypto assets,” Gilbert told Coindesk.
Despite the recent volatility, crypto continues to make strides toward mainstream acceptance. Notably, Morgan Stanley will allow its advisors to offer Bitcoin ETFs starting Wednesday. This follows more than half a year after the introduction of the first Bitcoin ETF. The investment bank will enable over 15,000 of its financial advisors to sell BlackRock’s IBIT and Fidelity’s FBTC. This move is seen as a significant step toward the “mainstreamization” of crypto, given the lengthy regulatory and company processes in major investment banks.
The recent crypto market downturn highlights its volatility and the broader economic concerns affecting all risk assets. While some analysts see the current situation as a temporary sell-off and a buying opportunity, others caution against the speculative nature of crypto. As the market evolves, its role as a mainstream alternative asset continues to grow, marked by increasing institutional acceptance and new investment opportunities.
