Bitcoin has passed another milestone today as the digital currency rose 6.6% to US$20,630, its highest level ever and the first time it has passed the US$20,000 threshold.
The ascent takes Bitcoin into unchartered territory, particularly as the recent rally has been attributed to institutional investors gradually increasing their exposure to the cryptocurrency in recent months.
This stands in contrast to the last big surge for Bitcoin in 2017, which at the time was fuelled more by speculation and ended in a dramatic crash that it has not recovered from until recently.
Another argument for Bitcoin’s rise is its growing reputation as a haven asset similar to gold as well as a hedge against inflation as central banks engage in massive quantitative easing and asset purchasing programmes to keep their economies afloat during the pandemic.
Ayush Ansal, chief executive of hedge fund, Crimson Black Capital, believes the rise might not be every just yet.
“After being in a wasteland since the infamous bull run of late 2017, crypto, and Bitcoin in particular, are back," he said.
“Bitcoin has been threatening the symbolic $20,000 barrier for some time and finally it has broken through. Public interest in cryptocurrencies will be reignited over the Christmas period, as people start to believe in Bitcoin all over again.
“The Covid-19 pandemic has almost certainly contributed to the rebound in Bitcoin. It has changed the order of things and that resonates with many investors right now.
“The resurgence of Bitcoin will once again have Central Banks on red alert. “If they become truly mainstream, Bitcoin and other cryptocurrencies represent an existential threat to the entire banking system."
Bitcoin’s growing popularity is reflected in its performance among exchange traded funds or ETFs, with research by wealth manager AJ Bell showing that it was by some distance the best theme for investors in 2020.
The XBT Bitcoin Tracker ETF comfortably topped the performance table with a rise of 159%, though Laith Khalaf at the wealth manager warns we have been here before and the last time Bitcoin surged towards a record high, it promptly fell back down to earth with a great big bang.
“In a world where the existing currency system is highly digitalised, it’s hard to see where Bitcoin can score an edge, particularly when its volatility inhibits use in the wider economy for regular payments such as wages and bills.”