The digital currency hit a record $ 49,714.66 on Sunday before retreating somewhat. Bitcoin has risen another 4% in the last 24 hours.
Investors sent the price of bitcoin up during the pandemic, as the Federal Reserve cut interest rates to near zero in March 2020 (and is expected to keep them there for a few more years), severely weakening the US dollar.
That makes bitcoin, by comparison, an attractive currency. There is a set limit for the number of bitcoins on the planet, and investors believe that with the depletion of supply, the value of digital currency can only increase.
As bitcoin reaches all-time highs, large, branded investors store it and huge consumer companies embrace it, contributing to the growing valuation of bitcoin.
Last week, Tesla said it could soon accept digital currency as payment for its cars. And Tesla, (TSLA) the most valuable car company on the stock market, said it owns some of its cash in bitcoin rather than traditional currency.
On Wednesday, Mastercard announced that it will support the “selection of cryptocurrencies” directly in its network at some point later this year. This was a major milestone for bitcoin: Square (ff) and PayPal (PYPL) recently began allowing customers to trade bitcoin, but Mastercard will be Bitcoin’s most popular major platform to date.
This means adding a dose of validity and attractiveness to cryptocurrencies for major investors. For example, an executive at BlackRock said last year that Bitcoin could one day replace gold. And Jay Z and Twitter CEO Jack Dorsey announced on Friday that the pair is setting up a bitcoin development fund.
Bitcoin surpassed $ 20,000 for the first time in December, and its value more than doubled in three months.
Risk appetite
However, the recent rise of cryptocurrencies is showing signs of melting – excess enthusiasm fueled by the fear of losing, not just the fundamentals of the market. Take Elon Musk’s sarcastic tweets about rival Bitcoin Dogecoin in recent months: digital currency, which was built as a parody of cryptocurrencies, rose 50% earlier this month after Musk posted on Twitter, only to collapsed in the last week.
Anthony Scaramucci, the founder of Skybridge Capital, has a big stake in bitcoin and a fund for rich investors: SkyBridge Bitcoin Fund LP. But even he says people need to be careful. He told CNN Business last month that it could be a solid addition to the average investor’s portfolio – but you have to have the stomach for it. After all, bitcoin prices fell below $ 4,000 shortly after reaching a previous low of just under $ 20,000 in December 2017.
“This could be a blast from above,” Scaramucci told CNN Business in January. “We expect the fund to be volatile and could lose money,”
Scaramucci said bitcoin could fall sharply from 20% to 50%. But he also pointed to the power of bitcoin over the past decade: if you took $ 1 and put 99 cents into it in cash and a penny in bitcoin, that investment strategy would have exceeded $ 1 invested in S&P 500 in the last 10 years, he noted.
“The most likely trajectory is that people can earn a monumental amount of money. Bitcoin is free of Federal Reserve policy or gold supply problems,” he said. “There is more demand for bitcoin now than supply. The price should go up.”
Paul R. La Monica of CNN Business contributed to the report.
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