The digital currency has a market value north of $ 500 billion. Do you think Bitcoin is just a fad? It’s worth more than Visa (V) or Mastercard (MA). Or Walmart (WMT).
Bitcoin first passed $ 20,000 just 11 days ago. Now it’s knocking on $ 30,000’s door.
Its rapid rise was remarkable – or insane, depending on your appetite for risk. But there is logic in the run-up: investors are pouring money into bitcoin and other cryptocurrencies during the Covid-19 pandemic, as the Federal Reserve sent interest rates close to zero (and expects to keep them there for a few more years), which is the US dollar.
This makes bitcoin a relatively attractive currency. There is a fixed limit to the number of bitcoins on the planet, and investors believe that once the stock runs out, the value of the digital currency can only rise.
It also helps with the rising valuation of bitcoin: big investors with brands are stopping it and big consumer companies are accepting it. It adds a dose of validity and a call to cryptocurrency for mainstream investors. For example a top manager at BlackRock (BLK) recently said the crypto-currency could replace gold, and Square (SQ) and PayPal (PYPL) both embraced bitcoin.
As bitcoin rises to overall highs, cryptocurrency brokerage Coinbase, the major cryptocurrency exchange, has announced its intention to go public.
The recent rise in cryptocurrency is still showing signs of a meltdown – too much enthusiasm fueled by the fear of missing out, not just the fundamentals of the market. Take Elon Musk’s sarcastic tweet about bitcoin rival Dogecoin last week: the digital currency, which itself was built as a cryptocurrency parody, shot up 20% immediately after Musk threw his support behind it on Twitter.
Anhony Scaramucci, founder of Skybridge Capital, has a huge interest in bitcoin, but even he says people need to be careful. He told CNN Business earlier this month that it could be a good addition to the average investor’s portfolio, but you have to have the guts for it.
In the live show of CNN Business ‘Markets Now’ earlier this month, Scaramucci said that people have started accepting bitcoin – and since it appears in so few portfolios, it has enough room to grow. Yet bitcoin is a volatile asset and it is a risky interest if you invest in it.
“This thing has a tendency to lapse,” he said. “It needs to be corrected, and these corrections can be violent.”
Scaramucci said bitcoin could suddenly tumble 20% to 50%.
“You have to be very careful,” he added.
But he also stressed the endurance of bitcoin over the past decade: if you took $ 1 and put 99 cents of it in cash and a cent in bitcoin, the investment strategy would perform better than $ 1 in the S&P 500 (SPX) over the past ten years, he noted.
“The best days of Bitcoin lie ahead, but it will be volatile and I think people need to be prepared for that,” Scaramucci told CNN Business.