Bitcoin’s volatile rally has put the value of cryptocurrencies past $1 trillion for the first time. The surge in bitcoin has boosted other cryptocurrencies following a fivefold climb in market value in the past year.
Bitcoin rose over 5% on Thursday to top $39,000 for the first time as it continues its amazing run from late last year that has placed its value at $700 billion. The digital asset has quadrupled in the past year and accounts for about two-thirds of cryptocurrency market value, followed by Ether on about 14%. Ether has risen 62% this year, according to a composite of prices compiled by Bloomberg.
Strategists attribute the rise to demand from speculative retail traders, trend-following quant funds, the rich and even institutional investors. Wall Street billionaires publicly backed the coin last year as more investors started seeing the coin as an inflation hedge.
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There has also been a surge in demand of bitcoin by prominent organizations and individuals that led credence to its frenzied rally. Investors such as Paul Tudor Jones and Stanley Druckemiller were among those who joined the trend, following the step of Twitter founder and CEO, Jack Dorsey. Large financial companies like PayPal, Fidelity, MicroStrategy and Dorsey’s Square have also made moves in the cryptocurrency.
“When you look at this bitcoin rally that we have been seeing in the last couple of weeks and months, really, there’s two big elements driving it. One is the continuous entry of institutional players,” Henri Arslanian, PwC’s global crypto leader told CNBC.
Data from CoinGecko, a crypto tracker platform confirmed that cryptocurrencies hit a milestone after a fivefold climb in market value in the past year.
It has been up about 30% since the start of the year following a nearly 370% surge in the past 12 months.
Researcher Flipside Crypto said active bitcoin accounts are nearing their all-time high levels of late 2017, which is a possible sign that some holders are planning to sell. Bloomberg noted that fewer than 2% of accounts hold 95% of bitcoin supply, so a few traders can impact prices. It means the recent invasion of the coin by rich individuals and organizations may result in a few controlling cryptocurrency.
Other factors like JPMorgan Chase & Co.’s long-term bitcoin price forecast of $146,000 and the US regulatory update that allows a class of less volatile coins to be used by banks for payments, have been also fingered by traders as possibly fueling the rally.
Arslanian said regulatory measures by the government is another factor driving the surge, as it wasn’t the case in the past year, and he expects the trend to continue in coming months.
As the government gets more involved in the activities of bitcoin, more investors are seeing it as the ‘digital gold’, a safe haven asset and inflation hedge. The idea has continued to penetrate the many business minds that are looking for a secure investment place from the pandemic.
JPMorgan said bitcoin could hit $146,000 in the long term as it competes with gold as an alternative currency. But the bank’s analysts added that it has to become less volatile to reach the price, considering its wild price swings.
However, its current run is expected to attract more investors in the next few months.
“This latest bull run in January is sure to attract the asset managers’ attention to diversify even more of their assets to crypto as they are keen on finding alternative investments, such as cryptocurrency or gold, to hedge inflation and geopolitical risks,” Simons Chen, executive director of investment and trading at cryptocurrency financial services firm Babel Finance, told CNBC.
“A large number of retail investors have also joined the race recently as they fear to miss out on opportunities to make easy, quick gain from the latest bull run,” he added.
The current value of cryptocurrency reflects the rise in the use of bitcoin. The total transaction volume of the digital asset in 2020 was greater than that of Venmo, Paypal or Apple Pay.
“There was more usage of the bitcoin payment rails than some of the most popular fintech products.
“Bitcoin is transitioning from what used to be a contrarian idea or a contrarian trade to a consensus trade. I think that’s where you’re getting this re-pricing of the asset and the rapid price appreciation, as more and more folks on Wall Street come into the asset and want exposure,” Anthony Pompliano, co-founder of crypto hedge fund Morgan Creek Digital, told CNBC.
However, the short time surge of bitcoin is casting doubt in the minds of many investors who believe it wouldn’t last long.