Bitcoin is on its way up again – some way off the record still, but definitely far off the bottom mark. It leaves investors to ponder the question of whether this time around the surge is leading to more than just a speculative bubble.
Bitcoin added some 30 percent in October 2020 so far and reached $13,850 on Wednesday – the highest since June 2019, according to «Bloomberg». The record of around $20,000, posted in January 2018, is quite far away still, but nothing seems impossible in the volatile world of crypto-finance.
While the traditional stock market is just performing a nose-dive due to the second corona-wave, highly speculative instruments such as Bitcoin have turned into sought-after alternatives. Investors, who must have lost lots of money when Bitcoin plunged following its record in early 2018, are now back snapping up the coin big style.
No Sign of a Bubble?
Analysts cited by «Bloomberg» on Wednesday (behind paywall) say that the increase of the coin wasn't a sign of another speculative frenzy. Nic Carter, a co-founder of Coin Metrics, suggested that the increase was driven by investors with deep pockets and not by retail customers.
The decision by PayPal to open its platform for buying and selling with Bitcoin may have helped the cryptocurrency. Also, with institutions of the traditional financial industry becoming more and more engaged in crypto-finances, trust in the new asset class seems to increase.
Infrastructure vs. Speculation
Central banks across the world (from China to Sweden the EU and Switzerland) in one way or other are developing their own digital central bank currencies. Big banks such as J.P. Morgan has launched its JPM Coin, while asset managers open their product portfolios to the new asset class. One such prominent name was Fidelity Investments, which started selling its first Bitcoin fund in the summer.
And yet, there is a difference still between a digital central bank currency that has a link to a fiat currency and a token such as Bitcoin. Investors who buy Bitcoin must consider the risk of losing a substantial part of their investment – given the heavy ups-and-downs, Bitcoin seems not very suited for day-to-day use and remains, for the moment, a speculative investment.
