Bitcoin’s stunning bull run has continued into 2021 as it surged beyond the $34,000 mark for the first time in history.
The virtual currency peaked at £34,366.15 over the weekend, before dropping back below the $33,000 level on Sunday evening as traders took some profit.
The cryptocurrency was one of the stories of last year, rocketing from $5,000 in March 2020 to $20,000 by December.
It ended the year 305% higher, smashing returns on mainstream asset classes with the S&P500 gaining 16% in 2020 and gold gaining 25%.
Data analytics firm GlobalData noted that changing monetary policies, rising inflation and the impact of Covid-19 had shifted investors’ focus towards alternative assets classes such as cryptocurrencies.
Ruffer is an example of this sentiment. The investment company bought bitcoin towards the end of last year to diversify the portion of its portfolio which hedges against wider market risks, after taking some profits on gold.
‘We see this as a small but potent insurance policy against the continuing devaluation of the world’s major currencies,’ Ruffer explained. ‘Bitcoin diversifies the company’s (much larger) investments in gold and inflation-linked bonds, and acts as a hedge to some of the monetary and market risks that we see.’
The digital currency’s growing appeal to institutional investors has left GlobalData principal disruptive tech analyst Kiran Raja believing the rally has far more substance this time.
‘Unlike bitcoin’s previous surge in 2017, which was driven by the hype among retail investors, the latest increase is a result of institutional investors, public companies, major banks and payment companies turning their investment focus to digital assets like cryptocurrency,’ Raj said.
Bitcoin has also been boosted recently by online payments company PayPal’s decision to introduce a new service, allowing its customers to buy, sell, hold and accept cryptocurrencies.
In a note published at the end of last year, senior Citibank analyst Thomas Fitzpatrick predicted bitcoin could hit $318,000 by the end of 2021, describing the virtual currency as the ‘gold of the 21st century’.
Fitzpatrick described bitcoin’s rise as ‘very reminiscent’ of the 1970s gold market, where the precious metal experienced 50 years stuck in the $20-$35 price range, before breaking out after a change in fiscal policy by the Nixon administration in 1971.
‘Gold has restrictions such as storage, non-portable, and could possibly be even called “yesterday’s news” in terms of a financial hedge,’ Fitzpatrick added.
However Brian Armstrong, the chief executive of America’s biggest cryptocurrency exchange Coinbase, warned on the mania surrounding bitcoin in a blog published just before Christmas.
‘We cannot emphasise enough how important it is to understand that investing in crypto is not without risk,’ Armstrong wrote.
‘We caution investors who may be focusing on short-term speculation and encourage customers to seek out resources and consult financial advisers to better understand the risks associated with investing in cryptocurrencies.’