A growing appetite for bitcoin since the end of September has seen the price of the cryptocurrency climb to levels last seen in January 2018, with one of the largest U.S. banks even suggesting it could constitute an alternative to gold.
At one point on Wednesday it almost hit the $ 14,000 mark – but despite a slight dip since then, it has dropped from $ 10,500 a coin at the end of last month to around $ 13,000 today, or £ 10,000.
The sharp rise in price since mid-October means that the value of the cryptocurrency has risen 87% earlier this week compared to last year, with the total value of the 18.5 million coins in circulation now. of $ 243 billion.
Bitcoin Price Hit Over $ 13,000, Highest Since January 2018
Even though the UK financial regulator announced in early October that it would ban the sale of cryptocurrency-related derivatives to casual investors from next January due to the potential harm they posed, the cryptocurrency did ‘the subject of a series of positive headlines that have helped boost investor confidence.
Last Wednesday, PayPal said that starting next year, US customers will be able to buy, hold and sell bitcoin in its app and use it to make payments for a fee, rather than just using PayPal as a way to fund purchases from Coinbase.
Even though those who were paid this way would see it converted back to regular money, the news has seen bitcoin rise in value by around $ 800 a day, according to figures from Coindesk.
Glen Goodman, an expert and author of The Crypto Trader, called the news a “ really significant rationale for Bitcoin from mainstream finance. ”
Meanwhile, Twitter founder and CEO Square, Jack Dorsey’s payments company, said it bought $ 50 million worth of coins earlier in October.
While many investors continue to view bitcoin simply as a speculative asset to try and make money on, crypto enthusiasts were likely encouraged to see more possible cases where it could actually be used as a means of payment on the market. ‘to come up.
The price of Bitcoin is still volatile, but it has been on an upward trajectory since a massive selloff in global stock markets in mid-March.
JP Morgan analysts suggested a fortnight ago, in light of news from PayPal and Square, that “ bitcoin’s long-term upside potential is considerable ” and that it could even compete “ more intensely with gold as an alternative currency ” due to its greater popularity among younger users.
Analysts added that: “ Cryptocurrencies derive value not only because they serve as a store of wealth, but also because of their utility as a means of payment.
“ The more economic agents accept cryptocurrencies as a means of payment in the future, the greater their utility and value. ”
The comparison to gold, even though the FCA described cryptocurrencies as having “ extreme volatility, ” is also likely another reason for the rise in the price of bitcoin since the dramatic drop in global stock markets to the half-March.
PayPal’s announcement that next year’s customers would be able to make bitcoin payments – even if they were converted back to real money – led to a price hike
Gold is considered a store of value due to its finite nature, while the 21 million coin cap on Bitcoin may “ attract some investors as they see government deficits swelling, ” said Russ Mold, director. investments at AJ Bell.
Central banks around the world are pumping money into their economies as they seek to support governments and businesses throughout the coronavirus pandemic by keeping borrowing costs low, which, according to some will lead to runaway inflation and lower currencies like the dollar.
Goodman added that he felt that prices had “ been largely influenced by the narrative of money printing, with central banks – particularly the U.S. Federal Reserve – expanding the money supply to counter the effect of the coronavirus on the economy.
“The dollar has depreciated as a result, and many investors – and even companies – are starting to hedge their dollar holdings by diversifying into ‘hard currencies’ like gold and Bitcoin.”
There was more research in the UK for bitcoin before it was halved in May, although it had less of an impact on the price.
This cocktail of good news and central bank actions meant that bitcoin massively outperformed the slight price increase seen ahead of its “ halving ” in May, which reduced the reward for digital mining of the bitcoin and the restriction of its supply.
Although data from Google Trends suggests this led to significantly more searches for bitcoin in the UK than seen in the past month, the price did not hit $ 10,000 until the end of July, two. months after the event.
However, even as enthusiasts are increasingly excited about the future of bitcoin as a payment method, it is possible that much of the interest is still driven by gamers, speculators and those who hope. that the price will simply continue to rise.
Ed Cooper, head of cryptocurrency at banking app Revolut, said: “ As retail investors see the price rise, they tend to become more bullish, which further increases the upward pressure on the prices. This then leads to more reporting, more interest, and so the cycle repeats.
Some 47% of those polled by the Financial Conduct Authority in a report released in July said they had never used the cryptocurrency for anything, with £ 260 bought on average largely “ as a bet that could win or lose money ”.
And even analysts at JP Morgan have warned that “ in the short term, bitcoin looks rather overbought and vulnerable to profit taking. ”
If you buy in Bitcoin
Find out how bitcoin and blockchain work, so you have some understanding of the system, the ledger, the major players, and key public and private elements.
Remember that bitcoin doesn’t earn anything and its main source of value is scarcity. Most of Bitcoin’s business is trading, not investing.
Look for coin wallets, digital vaults where cryptocurrency is located, and think carefully about security. Bitcoin has been stolen before, understand how it happened.
Be prepared for extreme volatility. The price can go up to 20% in a day and you could easily lose half your money in a much faster time than investing in the stock market.
Think about how you would cash out the winnings. There are reports that this has proven difficult for some people. A period of stress in the market could lead to people being stuck and unable to trade.
Read our guide How to Become a Successful Investor, which examines the much lower world of long-term investing and how to make it successful.
What is bitcoin?
The digital currency that most will be familiar with is free from government interference and can be shared instantly online. It is not based on the confidence of a single central monetary authority.
The underlying technology is blockchain, a financial ledger run by a network of computers that can track the movement of any asset without the need for a central regulator.
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