Bitcoin’s rise sparks debate over its reliability
Bitcoin’s rally above $15,000 has reignited debate over whether the cryptocurrency is so-called digital gold or a perilously risky bet as investors grapple with the coronavirus pandemic.
The world’s most popular virtual unit has gained over 30% in value in almost three weeks up to Friday, taking it close to its December 2017 peak when it reached nearly $20,000.
After a rollercoaster ride on markets since then, it began its latest meteoric rise on October 21, after US online payments provider PayPal announced that it would enable account holders to use cryptocurrency.
“It is the validation of a market which was still relatively uncertain a few years ago,” said Simon Polrot, president of Parisbased crypto-assets association ADAN. Bitcoin was created in 2008 by the pseudonymous Satoshi Nakamoto, and marketed as an alternative to traditional currencies. Unregulated by any central bank, it was sold as an attractive option for investors with an appetite for the exotic — although criminals have also seen its under-the-radar appeal.
The more recent arrival of big players in the virtual market, such as PayPal and Mastercard, are “very important signals” solidifying that trend, according to Polrot. PayPal said it would allow users to buy and sell using bitcoin as well as other cryptocurrencies such as Ethereum and Litecoin.
“The migration toward digital payments and digital representations of value continues to accelerate, driven by the Covid-19 pandemic and the increased interest in digital currencies from central banks and consumers,” the company said.
The US Federal Reserve and European Central Bank are holding consultations on the possible launch of their own virtual currencies, while China’s central bank started experimenting with digital payments in four cities in April. As with gold, bitcoin could benefit as central banks gush out trillions in stimulus support to counter the devastating effects of the Covid-19 pandemic, potentially diluting the value of their currencies.
Charles Morris, whose company ByteTree specialises in cryptocurrencies, argues bitcoin is “very much a growth asset, behaving like a tech stock”.
However, others point to the highly volatile and speculative nature of cryptocurrencies.