Is bitcoin’s huge price rise the canary in the global coal mine?

The price of bitcoin has surpassed $50,000 for the first time, as institutional adoption makes it an increasingly mainstream asset. But could its huge price rise presage serious and fundamental changes to the global order?

By Alex Rankine

published 18 February 2021

in Features

Tesla’s CEO Elon Musk has bought $1.5bn of bitcoin

(Image credit: © Britta Pedersen-Pool/Getty Images)

The price of bitcoin has surpassed $50,000 for the first time. The cryptocurrency made a new all-time high of $50,487 on Tuesday. It has rallied by 68% since 1 January and has soared tenfold since March last year. Previous bitcoin rallies quickly fell apart as speculative fever ebbed, but investors argue that this one rests on more solid fundamentals, says Ryan Browne for CNBC.

Institutional adoption is making bitcoin a more mainstream asset, with the recent jump triggered in part by Elon Musk’s announcement that Tesla has bought $1.5bn-worth of the digital currency. Mastercard, PayPal and investment bank BNY Mellon are among other big names to have got behind the digital currency of late.

Blue-chip bitcoin?

If other companies follow Tesla’s lead, then the opportunity for bitcoin is vast, says Tyler Durden on zerohedge.com. Institutional investors already own about $22bn-worth of bitcoin, equivalent to 3% of circulating supply, according to data from Cointelegraph. If the world’s corporations put just 3% of their estimated $10trn global cash pile into bitcoin the currency “could more than double” from here.

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Musk is hardly a typical leader, says James Dean in The Times. Most big firms are not run by iconoclastic, all-powerful “founder-chief executives”. This “is billionaire eccentricity, not a fundamental shift in corporate cash management”.

“What goes up can just as easily come crashing down,” says Willem Buiter on Project Syndicate. Bitcoin’s “spectacular price volatility” is characteristic of “an asset without intrinsic value whose market value can be anything or nothing”. Bitcoin only suits those “with healthy risk appetites and a robust capacity to absorb losses”.

Bitcoin’s fans love the fact that it is decentralised and supply is limited: only 21 million bitcoins will ever be created. That is attractive in “an era of extraordinarily loose monetary policy”, says Eoin Treacy of fullertreacymoney.com. Yet in other ways it remains painfully limited. Transaction speeds are so slow that it is impractical as a way of making payments. One day engineers may solve the scalability problem and create “a much better product”. But “right now it is what we have”.

No one knows which digital currency will ultimately be king, agrees Rana Foroohar in the Financial Times. It could be bitcoin, a competitor such as ethereum or “some yet-to-be-invented” cryptocurrency. Perhaps the best way to look at bitcoin is not as an investment opportunity but, as analyst Luke Gromen puts it, the “last functioning fire alarm” in a market where prices are hopelessly distorted by quantitative easing. As global confidence in the United States dollar ebbs, the frenzy in bitcoin is a “canary in the coal mine” warning us of “some very big geopolitical changes ahead”.

Alex is an investment writer who has been contributing to MoneyWeek since 2015. He has been the magazine’s markets editor since 2019.

Alex has a passion for demystifying the often arcane world of finance for a general readership. While financial media tends to focus compulsively on the latest trend, the best opportunities can lie forgotten elsewhere.

He is especially interested in European equities – where his fluent French helps him to cover the continent’s largest bourse – and emerging markets, where his experience living in Beijing, and conversational Chinese, prove useful.

Hailing from Leeds, he studied Philosophy, Politics and Economics at the University of Oxford. He also holds a Master of Public Health from the University of Manchester.