Is bitcoin “fool’s gold” or the new gold? asks James Dean in The Times. The cryptocurrency hit a new record high of $42,000 late last week, only to plunge by more than 20% over the weekend. Yet at around $34,500 in the middle of this week, bitcoin has still rocketed since October, when it cost $11,000.
A poor payment option
Once the preserve of “basement-dwelling libertarians” who hoped to upend the financial system, today bitcoin is close to becoming a mainstream investment, says The Economist. It turned out to be poor payment option: the network can only handle a few transactions per second.
Instead, the new hope is that it could emulate gold as a store of value that sits beyond the reach of government mismanagement. Younger investors appear to prefer digital wallets to the hassle of managing physical bullion. Yet “fraud and theft” are still “rampant” in the world of bitcoin trading. What’s more, the cryptocurrency’s price tends to move in line with stockmarkets, undermining its credibility as a “safe-haven” asset.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Bitcoin’s reputation for “extreme price swings” is still limiting its institutional uptake, says Dean. A store of value is not that useful if it can lose over a fifth in a weekend. Still, those who think bitcoin can “shake off” these problems think there could be big returns to come. JPMorgan estimates that bitcoin would have to quadruple before the total market value matched the $2.7trn that private investors have put into gold. That could imply an eventual bitcoin price of $146,000.
Regulators remain cautious
The comedian John Oliver once joked that bitcoin is “everything you don’t understand about money combined with everything you don’t understand about computers”, says Gavyn Davies in the Financial Times. Regulators are still cautious. This week the Financial Conduct Authority (FCA) warned British investors that “cryptoassets” involve “very high risks”. Consumers who invest “should be prepared to lose all their money”.
Yet ultimately governments will be more comfortable with the idea of cryptocurrency as a replacement for gold than cryptocurrency as a replacement for sovereign fiat money. The latest “frenzy” looks “dubious” to me, but we live in strange times.
Slowly but surely, bitcoin is “being domesticated” says Gian Volpicelli on wired.co.uk. The latest bitcoin run has felt positively “staid” compared to the unbridled mania of the 2017 boom and crash, when investors burnt their savings on “unrealistic promises of endless revenues”. Crypto-based hedge funds doubled their assets under management to $2bn between 2019 and 2020, according to a report from PwC and Elwood.
Yet perhaps the cryptocurrency’s rise is a sign that we have all got a little wilder too. The “chaos and despair” of 2020 has shaken faith in conventional monetary and political systems, says Lex Sokolin of blockchain business Consensys. As a result, institutional investors are looking for an “apocalypse hedge”.
-
Could investing in sugar protect you during a downturn?Sugar has some defensive qualities during economic downturns, but is now the right time to invest in sugar?
-
Trump’s tariffs: how should the UK respond?Every right-thinking person knows that free trade is a surer route to the wealth of nations than protectionism. So, what is Trump thinking?
-
Falling revenues and mounting debt spell trouble for Jumia TechnologiesStruggling African e-commerce platform Jumia Technologies looks headed for the exit, says Dr Matthew Partridge.
-
Next reports £1 billion in annual profits for the first time – what's next for the retailer?Clothing retailer Next has become only the fourth member of its sector to surpass £1 billion in annual profits. What does this mean for the company's future?
-
Best of British bargains: cash in on undervalued companies in the UK stock marketOpinion Michael Field, Chief Equity Market Strategist, EMEA, Morningstar, selects three attractive UK stocks where he'd put his money
-
Building firm Keller presents low debt and ample scope for growthGeotechnical contractor Keller, which supports vital global infrastructure, boasts rising profits and a cheap valuation
-
PZ Cussons share price down 75% in last decade – why it's one to watchOpinion Once-strong consumer-goods business PZ Cussons is out of favour with the market. That spells opportunity for investors, says Jamie Ward
-
Cash in on the biotech sector with specialist trust BioPharmaOpinion BioPharma has an attractive niche in lending to asset-rich biotechnology companies
-
India's stock market decline wipes out $1.3 trillion in market value – can investors stay optimistic?More than $1 trillion has been wiped off from India's stock market after investors turn to China. Has the emerging-market darling hit rock bottom?
-
Pensions revolution: how to profit from the trends shaping the UK pension systemThe UK pension system is one of the biggest in the world. Big changes are under way, says Rupert Hargreaves
