Bitcoin soars to all-time high as bulls say this time is different

Bitcoin has posted an average daily move of 2.7 per cent this year, according to data compiled by Bloomberg.
Bitcoin has posted an average daily move of 2.7 per cent this year, according to data compiled by Bloomberg.PHOTO: AFP

LONDON (REUTERS, BLOOMBERG) - Bitcoin soared to a record high against the US dollar on Monday (Nov 30), as its 2020 rally steamed ahead, boosted by increased demand from both institutional and retail investors that saw the virtual currency as a safe-haven and a hedge against inflation.

The digital unit touched an all-time peak of US$19,864.15 (S$26,615), breaking its prior record set nearly three years ago. It was last up 6.1 per cent at US$19,306.35.

Bitcoin, however, remains highly volatile. Last Friday, it dropped more than 8 per cent, below US$17,000, before rebounding on Monday.

Bitcoin has posted an average daily move of 2.7 per cent this year, according to data compiled by Bloomberg. That compares with swings of 0.9 per cent for the price of gold, which is sometimes contrasted with digital assets and also hit a record in 2020.

Bitcoin overall has gained more than 170 per cent this year, fuelled by a demand for riskier assets amid unprecedented fiscal and monetary stimulus, hunger for assets perceived as resistant to inflation, and expectations that cryptocurrencies would win mainstream acceptance.

"Bitcoin is a natural safe haven for those seeking shelter from rapidly increasing central bank money printing and the inflation that everyone agrees is already increasing," said Sergey Nazarov, co-founder of Chainlink, a decentralized network that provides data to smart contracts on the blockchain.

Smaller coins ethereum and XRP XRP-BTSP, which often move in tandem with bitcoin, gained 5.6 per cent and 6.6 per cent, respectively.

Christopher Bendiksen, head of research at CoinShares, also cited continued corporate and institutional interest as well as post-Thanksgiving retail demand for bitcoin's renewed surge.

"While circumstantial, price action really started picking up speed when the US woke up this morning, which could reflect buying pressure from retail-oriented platforms such as Square's CashApp, Robinhood and PayPal," he added.

Square's Cash App and PayPal, which recently launched a crypto service to its more than 300 million users, have been scooping up all new bitcoins, hedge fund Pantera Capital said in its letter to investors a fee weeks ago.

That has caused a bitcoin shortage and has driven the rally in the last few weeks.

Bitcoin's 12-year history has been peppered with steep gains and equally sharp drops. The token hit a previous high of US$19,511 in December 2017 amid widespread elation, only to lose 70 per cent over the course of the following year.

In some ways, 2020 proved fertile grounds for Bitcoin's comeback, with global central banks driving borrowing rates to record lows and providing extraordinary stimulus because of the Covid-19 pandemic.

Proponents have seized on the money-printing narrative to promote the notion that bitcoin is a store of wealth even though inflation remains mostly muted. Still, prominent investors including Paul Tudor Jones said they've bought the cryptocurrency as a hedge against central bank and government actions.

Even with the latest price surge, the ownership of Bitcoin remains concentrated in the hands of a small number of investors who were some of the earliest adopters. About 2 per cent of the anonymous ownership accounts that can be tracked on the cryptocurrency's blockchain control 95 per cent of the digital asset, according to researcher Flipside Crypto.

With the eye-popping gains, traditional financial firms have sought to capitalize on increasing institutional demand, with Fidelity Investments launching a bitcoin fund earlier this year. PayPal's decision in October to allow customers to use cryptocurrencies was seen as opening it up to an even wider audience.

"You now have numerous ways for institutional investors to get exposure to crypto using regulated exchanges or instruments they are comfortable with," said Henri Arslanian, PwC Global Crypto Leader. "Most of these did not exist in 2017."

Analysts say the bitcoin market has evolved since 2017, now boasting a functioning derivatives market and custody services by major financial firms.

The shifts have made it easier for professional investors from hedge funds to family offices to seek exposure to crypto, and as a result markets are, in general, more liquid and less volatile.

Matt Maley, chief market strategist at Miller Tabak + Co, says it could reach as high as US$22,000 before it tops out for a while. Technical indicators show it's gotten overbought, meaning it could soon pull back. Any drawdown could be swift but, he says, "it is very unlikely that it will be anywhere near as big as the 2018 decline."