Bitcoin jumps to record high above US$66,000 in crypto's 'validating moment'

Bitcoin has climbed to its latest high atop a tide of pandemic-era liquidity.
Bitcoin has climbed to its latest high atop a tide of pandemic-era liquidity.PHOTO: REUTERS

NEW YORK (BLOOMBERG) - Bitcoin rallied to a record, topping US$66,000 for the first time on Wednesday (Oct 20), as optimism surged for greater mainstream acceptance in the wake of a successful launch of an inaugural exchange-traded fund (ETF) for US investors.

While the historically volatile digital currency spent recent days hovering in a narrow range as it approached its previous April high, the vault past the threshold happened much faster. The price added more than a thousand dollars in a minute just after the open of stock exchanges in the United States. Big moves tied to significant chart levels have been a common phenomenon in the little more than a decade history of cryptocurrency trading.

"It's a validating moment," said Mr Jesse Proudman, co-founder and chief executive at Makara, a crypto advisory firm. "It's no longer a question of does this asset class continue to exist - I think that's a really meaningful mark in the history of the broader digital asset class."

Demand for the ProShares Bitcoin Strategy ETF continued to surge, with more than 29 million shares changing hands on Wednesday, or more than during the fund's almost record-breaking debut. That is equal to more than US$1.2 billion (S$1.6 billion) in volume. The first Bitcoin-linked ETF listed in the US launched on Tuesday as the second-most heavily traded fund on record.

Bitcoin has climbed to its latest high atop a tide of pandemic-era liquidity, speculative bets and expectations of wider adoption by institutional investors. The ride was volatile: The token plunged below US$30,000 in June amid criticism of its energy consumption and China's cryptocurrency crackdown. It then began to recover in part as the crypto sector adjusted to China's broadsides.

Amid all the price hysteria, many quarters of the Wall Street establishment nurse a deep scepticism about Bitcoin's role in finance. Securities regulators are stepping up their scrutiny of cryptocurrency, with the US government effectively blocking a Bitcoin lending programme at Coinbase Global. Critics have also cast doubt on claims the asset's scarcity makes it a long-term store of value and note its slow uptake as a unit of exchange.

Bitcoin rose as high as US$66,976 during New York trading hours, bringing its gain for the year to almost 130 per cent. The largest digital currency by market value gained more than 300 per cent last year and 95 per cent in 2019 after tumbling 73 per cent the previous year.

With turnover of almost US$1 billion, the ProShares fund debut on Tuesday was behind only a BlackRock carbon fund for a first day of trading, the latter ranking higher due to pre-seed investments, according to Bloomberg Intelligence.

"Clearly, the launch of a Bitcoin futures ETF in the US has sent prices soaring to these levels," said Ms Leah Wald, chief executive at Valkyrie Investments, which has an application out for a futures-based fund.

Bitcoin's biggest proponents back controversial arguments that the virtual currency is a store of wealth and a hedge against the most potent threat from inflation in many years.

Wall Street

Enthusiasm has also increased in some corners of Wall Street. Bank of New York Mellon Corp, Goldman Sachs Group and Morgan Stanley are among firms offering crypto-related services.

Ms Dawn Fitzpatrick, chief investment officer of Soros Fund Management, said her firm holds some coins and that cryptocurrency "has gone mainstream".

At the same time, there is a still a long way to go. For instance, SkyBridge Capital founder Anthony Scaramucci said that while there is a "feeding frenzy" in crypto among about 10 per cent of financial services firms, the vast majority are hesitant about the asset class.

Over the past few years, a whole new crypto economy has formed. Non-fungible tokens or NFTs - which allow holders of digital art and collectables to track ownership - have surged into the limelight.

Decentralised finance

So has the decentralised finance - DeFi - ecosystem, which allows people to lend, borrow, trade and take out insurance directly from one another, without use of intermediaries such as banks.

Bitcoin's record comes in time for its birthday - the digital coin was born on Halloween 2008 with the publication of a research paper by someone who went by the name Satoshi Nakamoto.

The paper was entitled Bitcoin: A Peer-To-Peer Electronic Cash System. Its birth ignited a digital currency revolution that led to the emergence of more than 12,000 other coins, according to CoinMarketCap.com data. The total market value of cryptocurrencies exceeds US$2.5 trillion.