Bitcoin surge raises risk of speculative bubble to new level

Bitcoin hit a record $50,602 and has risen around 70% so far this year.

Bitcoin soared above $50,000 to an all-time high, adding steam to a rally fuelled by signs that the world’s biggest cryptocurrency is gaining acceptance among mainstream investors and companies.

Bitcoin hit a record $50,602 and has risen around 70% so far this year, with most of the gains coming after electric carmaker Tesla said it had bought $1.5bn (€1.2bn) in Bitcoin.

The move by Tesla, which also said it would accept bitcoin as payment, was the latest in a string of large investments that have vaulted bitcoin from the fringes of finance to company balance sheets and Wall Street, with US firms and traditional money managers starting to buy the coin.

Such mainstream moves, some investors said, could help bitcoin become a widespread means of payment - something it has so far failed to achieve at any large scale - and in turn further bolster prices.

“The more people that adapt it and use it as money, then the greater the chances of it perhaps being taken on board as a mainstream currency,” said Russ Mould, investment director of AJ Bell. “That would feed further speculative interest,” he said. 

The rush in 2021 by retail and institutional investors comes on top of a 300% rise last year as investors searched for high-yielding assets and alternatives the dollar amid rock-bottom or even negative interest rates across the globe.

The meteoric rise of Bitcoin, which traded at a few hundred dollars only five years earlier, has also led major investment banks to warn of a speculative bubble. Bitcoin’s rise “blows the doors off prior bubbles,” BofA said last month.

Even as bitcoin laps into the mainstream, cryptocurrencies remain subject to patchy oversight around the world, with the lack of regulatory clarity and associations with crime keeping many larger investors leery of exposure. 

Reuters