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Bitcoin hits $51,721.15 as its record rally continues

In yet another high, Bitcoin soared to hit a record $51,721.15 on Wednesday.

The world’s biggest digital currency, which has a market capitalisation of more than $900 billion hit the record high, fueled by signs that it is winning acceptance among mainstream investors and companies such as Tesla, Mastercard and BNY Mellon.

This comes a day after the virtual currency vaulted to the $50,000 hurdle, even as analysts warned against the sustainability of such prices amid elevated volatility.

Bitcoin was last up 3.68 per cent at $50,990.6. Despite the flurry of mainstream acceptance in 2021, some analysts warned that Bitcoin was still far from becoming a widely used form of payment. Bitcoin has risen eightfold since March 2020 and has added more than $700 billion in market value since September.

The ‘magnitude’ of the jump

Currently, around 78 per cent of issued Bitcoins are either lost or being held with very little intent to sell. This leaves less than 4 million Bitcoins to be shared among future market entrants — including large institutional investors such as PayPal, Square, S&P 500 companies, and exchange traded funds, blockchain data provider Glassnode said.

JP Morgan questioned the “magnitude” of the jump on the back of a total flow of just $11 billion from institutional investors. The digital currency’s limited supply — based on “miners” producing a set number of new coins — has led to holders charging a premium on Bitcoin coming to market, JP Morgan analysts said in a note. Retail flows may have also magnified institutional flows, they said.

Still, Bitcoin’s prices aren’t sustainable unless its volatile price swings cool down quickly, said the JP Morgan analysts, who flagged Bitcoin’s emergence as digital gold in January 2021.

Will it meet the same fate of Dutch tulips?

“Bitcoin presently is not an efficient manner for high-volume transacting, and it is certainly not a store of value as its price volatility at 80 per cent is a dozen times higher than the euro and sevenfold of the Russian rouble. That said, it is a perfectly legitimate speculative asset, quite similar to Dutch tulips in 1636. Will it meet the same fate? That is unclear. As such, size your risk appropriately,” said Simplify Asset Management managing partner Harley Bassman.

Dutch tulips in the 1600s reached extraordinarily high levels before dramatically collapsing in 1637.

Brian Melville, director of strategy at Cumberland, the crypto arm of Chicago trading firm DRW, said, “We’ve closely watched the clear supply-demand imbalance over the past couple of months as there has been a significant uptick in institutional interest.”

Also, US broker Wedbush said it sees less than 5 per cent of public firms heading down the Bitcoin investment path in the next 12 to 18 months.

ALSO READ: Twitter may use Bitcoin for transactions: Top officer

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