Bitcoin soars to new high amid concerns over sustainability
Rise above US$52,000 fuelled by signs of acceptance among mainstream investors, firms
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The world's biggest digital currency, with a market capitalisation of more than US$900 billion (S$1.19 trillion), hit a record of US$52,577.50 on Wednesday. Despite the flurry of mainstream acceptance this year, some analysts have warned that bitcoin is still far from becoming a widely used form of payment.
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NEW YORK • Bitcoin surged to yet another record high on Wednesday, a day after the virtual currency vaulted the US$50,000 hurdle, even as analysts warned against the sustainability of such prices amid elevated volatility.
The world's biggest digital currency, with a market capitalisation of more than US$900 billion (S$1.19 trillion), hit a record of US$52,577.50, fuelled by signs it is winning acceptance among mainstream investors and companies, such as Tesla, Mastercard and BNY Mellon.
Bitcoin was last up 6.3 per cent at US$52,233.
Despite the flurry of mainstream acceptance this year, some analysts warned that bitcoin was still far from becoming a widely used form of payment.
"Bitcoin presently is not an efficient manner for high-volume transacting, and it is certainly not a store of value as its price volatility at 80 per cent is a dozen times higher than the euro and seven times higher than the Russian rouble," said Simplify Asset Management managing partner Harley Bassman.
"That said, it is a perfectly legitimate speculative asset, quite similar to Dutch tulips in 1636. Will it meet the same fate? That is unclear. Thus, size your risk appropriately."
Dutch tulips in the 1600s reached extraordinarily high levels before dramatically collapsing in 1637.
Bitcoin has risen eightfold since March last year and has added more than US$700 billion in market value since September.
JPMorgan questioned the "magnitude" of the jump on the back of a total flow of just US$11 billion from institutional investors.
Its limited supply - based on "miners" producing a set number of new coins - has led to holders charging a premium on bitcoin coming to market, JPMorgan analysts said in a note.
Retail flows may have also magnified institutional flows, they added.
Broker-dealer Oasis Pro Markets' co-chairman and chief executive Pat LaVecchia said: "Bitcoin will be very volatile for a very long period of time, but with what's occurring with central banks, its attraction is based on macroeconomics."
He added: "As I look at news that (hedge fund managers) Paul Tudor Jones and Stanley Druckenmiller, who couldn't be more traditional, are all exploring or investing in bitcoin from a diversification standpoint, then it seems bitcoin is here to stay, even if it drops back to US$30,000 or US$20,000."
BlackRock's chief of global fixed income Rick Rieder told CNBC news channel on Wednesday that the world's largest asset manager has started to "dabble a bit" in bitcoin.
Mr Anthony Scaramucci, founder and managing partner of hedge fund SkyBridge Capital and former communications director under the Trump administration, also told CNBC on Wednesday he sees bitcoin hitting US$100,000 per unit before the year ends, citing supply and demand. SkyBridge is also invested in bitcoin.
Currently, around 78 per cent of issued bitcoins are either lost or being held with very little intent to sell.
According to blockchain data provider Glassnode, this leaves less than four million bitcoins to be shared among future market entrants - including large institutional investors such as PayPal, S&P 500 companies and exchange-traded funds.
The JPMorgan analysts said bitcoin's prices are not sustainable unless its price swings cool down quickly. Last month, the analysts flagged the asset's emergence as digital gold.
"Bitcoin, at current market prices, has already more than doubled relative to gold in risk capital terms," they said, pointing to the digital coin's three-month realised volatility, at 87 per cent versus 16 per cent for gold.
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