Bitcoin price still surges, so do doubts on its legitimacy

Digital currency Bitcoin extended its record rally over the weekend, beginning the year with a surge over $30,000 (Dh110,196) for the first time
Image Credit: Reuters

Dubai: With the price of Bitcoin continuing to zoom past milestones week after week, those who are skeptical of the move continued to warn of a colossal collapse, while those in favour of the move are expecting it to rise even higher.

Digital currency Bitcoin extended its record rally over the weekend, beginning the year with a surge over $30,000 (Dh110,196) for the first time, with more traders and investors expecting it to be on its way to becoming a mainstream payment method.

Over the past few days, the price of the world’s most popular cryptocurrency traded as high as $33,099 (Dh121,579), when almost all other markets were closed over the first weekend in 2021. Bitcoin was changing hands even higher at around $34,400 (Dh126,358) on Sunday.

Rising by leaps and bounds

Once the price of the cryptocurrency crossed the $30,000 (Dh110,196) mark for the first time, days after it hovered around nearby price levels, it leaped upwards by about $4,000 (Dh14,692) within hours, as most traders were awaiting the price to cross that threshold, analysts view.

The latest gains come days after Bitcoin ended the year more than 300 per cent higher, with an almost 50 per cent gain in December. On November 30, Bitcoin breeched a nearly three-year-old high of $19,793 (Dh72,703). By the close of 2020, the cryptocurrency had risen about $10,000 (Dh36,732).

The reason behind this unprecedented spike is not because of individual investors, but rather a flood of institutional investors (entities which pool money to purchase securities like hedge funds) who are piling money into Bitcoin, arguing that the cryptocurrency represents a form of ‘digital gold’.

Big money continues to roll in

Among the institutional investors are renowned financier Anthony Scaramucci’s US-based firm Skybridge Capital, which in December invested $182 million (Dh668 million) into Bitcoin, while US-based MassMutual amassed $100 million (Dh367 million) last month.

Bitcoin’s proponents are emerging with optimistic price predictions. Scott Minerd, chief investment officer (CIO) at Guggenheim Partners, recently told Bloomberg that the firm’s valuation models suggest that Bitcoin could go as high as $400,000 (Dh1.5 million).

The outlandish forecasts don’t end there. Another US-based investment firm CoinFund’s investment head Seth Ginns left that estimate in the dust by forecasting a $1 million (Dh3.7 million) price target for the cryptocurrency.

Rick Rieder, the chief investment officer of US-based investment giant BlackRock (BLK), has said the digital currency could replace gold. US payment firm PayPal (PYPL) has embraced Bitcoin, after showing reluctance to do so.

Key factors driving price upwards

The currency has been rising on the view or perception on how scarce it is. It currently has 18.57 million tokens in circulation and a limit of 21 million. Over time, the remaining 2.43 million tokens will be mined via transaction proofing and block rewards.

Growing global uncertainty may also be playing a factor in the recent surge, analysts add. A mutated strain of COVID 19, a lagging world economy, and concerns over the effects of the now-completed Brexit could be aiding the cryptocurrency’s price, which some see as insurance against global chaos.

With a market value now of over $595 billion (Dh2.19 trillion), Bitcoin is more valuable than all but nine publicly traded companies, sitting between China’s Alibaba at $648.3 billion (Dh2.38 trillion) and Warren Buffet’s Berkshire Hathaway at $543.7 billion (Dh1.99 trillion).

Rising the ranks fast

The cryptocurrency has also risen up the ranks of the world’s most valuable currencies as well, surpassing the Saudi Riyal and one behind the Mexican Peso at seventeenth place.

Historically, this isn’t the first time Bitcoin has spiked this big. It had a strong run in 2017 and hit a then-record high of more than $20,000 (Dh73464).

However, its price plummeted to just over $3,000 (Dh11,019) by early 2019 as China continued its crackdown on cryptocurrency businesses, thereby backing the view that the currency is extremely volatile in nature. It then rebounded to $8,000 (Dh29,385) in May 2019.

Threat of fraud looms

Even as the cryptocurrency is seen turning mainstream rapidly, the currency is still commonly used by fraudsters, giving it negative attention. In July last year, hackers took over Twitter accounts belonging to Elon Musk, Bill Gates and Barack Obama in an apparent effort to earn income by scamming people out of Bitcoin.

Due to the currency’s decentralised and nearly anonymous nature, it can be hard to get money returned after losing it in a scam, as there is no central authority — such as a bank — to intervene. Decentralisation has made cryptocurrency a favorite for scammers, even as it appeals to technologists and investors alike.