Bitcoin’s market value reached US$1 trillion (S$1.32 trillion) for the first time, a surge that’s helping cryptocurrency returns far outstrip the performance of more traditional assets like stocks and gold.
The largest digital asset has added more than US$450 billion of value this year to more than US$1 trillion, data compiled by Bloomberg shows. The Bloomberg Galaxy Crypto Index, which includes bitcoin and four other coins, has more than doubled.
Bitcoin hit another fresh high on Saturday after its market capitalisation went above US$1 trillion on Friday. It rose to a record US$57,553, taking its weekly gain to around 20 per cent.
Speculators, corporate treasurers and institutional investors are thought to have stoked bitcoin’s volatile ascent. Crypto believers are duelling with sceptics for the dominant narrative around the climb: The former see an asset being embraced for its ability to hedge risks such as inflation, while the latter sense a precarious mania riding atop waves of monetary and fiscal stimulus.
At the same time, the argument has been made that assigning a market capitalisation is not an accurate representation since bitcoin isn’t a company or even an asset. Sceptics say without real-world assets that companies possess or government backing like the US dollar, all investors are really buying into is faith in the cryptocurrency’s network.
Still, Fomo – fear of missing out – may be at play, said Mr Shane Oliver, head of investment strategy with AMP Capital Investors in Sydney, adding that “in times of easy money this gets magnified and it’s partly what’s driving the current interest”. The crypto index’s performance towers over stocks, gold, commodities and bonds this year.
This month, Tesla disclosed a US$1.5 billion investment and MicroStrategy boosted a sale of convertible bonds to US$900 million to buy even more of the token. That brought the coin closer to corporate America.
“If companies’ fundamentals are going to become closely tied to movements in bitcoin because they’ve suddenly become speculators on the side, we’re going to be in bubble territory before you know it,” said senior market analyst with Oanda Europe Craig Erlam.
Tesla chief Elon Musk posted a tweet on Friday that appeared in part to defend the company’s action, saying bitcoin “is simply a less dumb form of liquidity than cash” while adding that the electric vehicle maker’s decision is not “directly reflective of my opinion”.
In a subsequent tweet, he said the prices of bitcoin and Ethereum “seem high”, in reply to Mr Peter Schiff – a cryptocurrency sceptic and noted gold bug – who said the precious metal is better than bitcoin and fiat money.
AMP’s Mr Oliver said if bitcoin “falls out of favour… then it could quickly plunge”.