Bitcoin, the world’s best-known cryptocurrency, has jumped above $17,000 (£12,800) to hit a three-year high.
The digital currency has suffered plenty of wild price swings since it was launched in 2009. But investors have been flocking to cryptocurrencies during the pandemic-driven volatility on global stock markets. However, experts have cautioned about viewing them as a “safe haven”. On Wednesday, Bitcoin had climbed more than 7% to $17,891, its highest level since December 2017. Some analysts said the Covid-19 pandemic has encouraged investors to reassess the long-term outlook for Bitcoin and other cryptocurrencies. But there are still concerns about the fraudulent trading in cryptocurrencies following a succession of high-profile hacks.
‘Bouncing like a yo-yo’
During times of volatility, investors tend to move their money out of shares and into what are considered safer havens, like cash and gold. Some feel cryptocurrencies are now being viewed as a shelter from stock market volatility. “Covid-19 has disrupted the traditional safe-haven trade and gold’s inability to outperform. Periods of extreme risk aversion have forced many traders to diversify into Bitcoin,” said Edward Moya, at trading firm Oanda. One attraction of Bitcoin is its limited supply, which is capped at 21 million.
Some feel this scarcity provides an innate value and shields Bitcoin from inflation, which is becoming a worry. But Shane Oliver, head of investment strategy and chief economist at AMP Capital, warned about jumping into Bitcoin. “Its huge volatility hardly makes it a safe haven as a store of value. I have far more confidence in the $50 note in my wallet retaining its value over time than Bitcoin, which seems to bounce around like a yo-yo.”
Last month, PayPal announced that its customers will be able to buy and sell Bitcoin and cryptocurrencies using their PayPal accounts, allowing customers to buy things from the 26 million sellers which accept PayPal, it said. PayPal plans to roll out buying options in the US over the next few weeks, with the full rollout due early next year. But Oanda’s Mr Moya warned traders to prepare for more volatility. “The amount of hedge funds and high-frequency trading systems driving Bitcoin higher will likely deliver exaggerated moves once its price nears the $20,000 level,” he added. “Traders need to expect $1,000 swings in a matter of minutes.” Some believe the recent rise in Bitcoin is partly driven by the “fear of missing out” (FOMO). “Its rebound is creating more interest from speculators and so they are jumping in which then pushes it even higher,” added Mr Oliver.
“I think most people would put more faith in a digital currency run by their government rather than one like Bitcoin that they have trouble understanding or explaining.”
One trader, Jon Son, told the BBC: “I think more people are beginning to buy Bitcoin first not to miss the rise and then research into what exactly Bitcoin is.”
This article was taken from the BBC website and not written by TLCX