Bitcoin was fast approaching the $50,000 mark on Tuesday as the afterglow of Elon Musk-led Tesla’s investment in the cryptocurrency had investors reckoning it may become a mainstream asset class for both corporations and money managers.
The most popular cryptocurrency has gained 1,150% from March 2020 lows as institutional investors search for alternative wealth stores and retail traders ride the wave. It traded at a few hundred dollars only five years back.
Monday, it leapt 20% after Tesla announced it had a $1.5 billion investment and that it would eventually take the cryptocurrency as payment for its cars. That was its largest daily rise in more than three years.
The price of one bitcoin climbed to a peak of $48,216 -- almost enough to buy one of the best-selling Tesla vehicles, Tesla Model Y SUV. Rival cryptocurrency ethereum struck a record high of $1,784.85 on Tuesday.
As of 0946 GMT, the pace of the rally had cooled, and was trading flat.
Musk, a well-known supporter of cryptocurrencies, foresees accepting the currency as a payment for Tesla cars and analysts reckon this is a larger shift as companies and big investment houses follow small traders into the asset.
“Bitcoin is definitely capturing investors’ attention -- I get more and more questions about it,” said Marija Vertimane, senior strategist at State Street Global Markets.
“From a practical point of view, using bitcoin to buy anything – Tesla cars – would be still extremely difficult given its excessive volatility.”
Bitcoin’s volatility has been a hindrance for some serious investors. Realised volatility, or daily price swings measured in terms of closing prices for Bitcoin over the past 90 days was at 72% compared with 16% for the S&P 500 stocks index and 6% for the euro currency.
Still, in BofA’s January fund manager survey, bitcoin topped the list of “most crowded” trades. Another survey, by Deutsche Bank, warned of price bubbles in the cryptocurrency.
Billionaire Musk has long been a cryptocurrency fan - he has talked them up online - but Tesla’s hard currency investment came as a surprise that has put a rocket under the sector.
“Right now, it still seems like a bit of a leisurely pursuit, to acquire bitcoin. But I think by the end of the year, with the current rate of institutional flow inbound, it will become clear that this is a once-in-a-lifetime landgrab,” said Jehan Chu, founder and managing partner at Kenetic, which invests in blockchain-related companies.