Bitcoin jumped above $17,500 on Tuesday, closing in on its all-time highs.
The cryptocurrency is benefiting as big money starts to jump in and regulators have given it tacit—if not quite official—approval as an accepted asset class. It’s up 147% this year, and has shown particular strength in the past few weeks. Bitcoin’s all-time high is $19,783, which it hit in December 2017 before falling sharply over the next few months.
Although Bitcoin is still used for the sorts of things that once made it anathema to investors—such as ransomware attacks on institutions —it’s also become more accepted by some investors as a kind of hedge on the dollar. Some people who expect the Federal Reserve’s decision to keep interest rates low will spur inflation think Bitcoin will resist that kind of devaluation. The supply of Bitcoins is capped at 21 million so proponents argue it can’t be devalued in the same way. Hedge fund investor Stanley Druckenmiller said earlier this month that he owns a “tiny bit” of Bitcoin as he anticipates the dollar will decline in value.
“I own many, many more times gold than I own Bitcoin, but frankly if the gold bet works, the Bitcoin bet will probably work better because it’s thinner and more illiquid and has a lot more beta to it,“ Druckenmiller said on CNBC.
Anxiety about inflation has become a standard explanation for Bitcoin’s rise, though there are some factors that complicate the narrative. For one thing, the second-most valuable cryptocurrency, Ethereum, is also on a bull run and its supply isn’t capped. And this isn’t the first time in the past few years that fears of inflation have reared their head. Investors have regularly complained that the Fed is “printing money.” Over that period, Bitcoin has sometimes risen and it has sometimes fallen.
Cryptocurrency regulation is scattershot today, with some things handled by states and some by different federal agencies. But regulatory decisions have mostly been positive for cryptocurrency in recent months.
(PYPL) said last month it had gotten a special license from the New York State Department of Financial Services as part of its plans to allow users to trade Bitcoin.
While President Trump has said he’s “not a fan” of Bitcoin, and the SEC has cracked down on alleged fraud at some cryptocurrency companies, agencies such as the Commodity Futures Trading Commission have opened the door to various crypto services such as asset custody. That kind of mostly-friendly regulation may continue. One of President-elect Joe Biden’s top advisors on financial regulation, Gary Gensler, is “viewed as friendly towards cryptocurrencies,” notes Edward Moya, analyst at currency broker OANDA.
Bitcoin has also been embraced by more corporations, such as Square, and attracted new institutional money.
which offers Bitcoin futures, has reported volume spikes in recent weeks. Open interest for large institutional holders in the futures contracts is at an all-time high, CME told Barron’s on Tuesday. Average daily volume is up 7% this month versus October to 7,900 contracts.
Still, Bitcoin continues to have its skeptics. Well-known hedge fund investor Ray Dalio expressed his doubts on Tuesday as the price continued to ramp up.
Dalio wrote on Twitter that Bitcoin does not work well either as a medium of exchange or a store of value given its volatility and the fact that you can’t buy much with it. And even if governments have so far not tried to shut it down, “if it becomes successful enough to compete and be threatening enough to currencies that governments control, the governments will outlaw it and make it too dangerous to use.”
“Also, unlike gold which is the third highest reserve assets that central banks own, I can’t imagine central banks, big Institutional investors, businesses or multinational companies using it,” he wrote.
That said, he made it clear that he’s willing to reconsider his positions. “If I’m wrong about these things I would love to be corrected,” he wrote.
Write to Avi Salzman at firstname.lastname@example.org
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