Bitcoin hit a record $50,603 and was last up 0.83% at
$48,351. It has risen around 67% so far this year, with most of the gains
coming after electric carmaker Tesla said it had bought $1.5 billion in
bitcoin.
The move by Tesla, which also said it would accept bitcoin
as payment, was the latest in a string of large investments that have vaulted
bitcoin from the fringes of finance to company balance sheets and Wall Street,
with U.S. firms and traditional money managers starting to buy the coin.
"The rally in bitcoin in part reflects the recent
buoyancy of market confidence but also headlines suggesting an increase in
corporate acceptability," said Jane Foley, head of FX Strategy at
Rabobank.
Evolve Funds Group said on Tuesday it had applied to launch
a Bitcoin exchange-traded fund on the Toronto Stock Exchange. That would be the
second planned bitcoin ETF after Canada's main securities regulator approved a
fund by Purpose Investments Inc.
Such mainstream moves could help bitcoin become a widespread
means of payment - having so far failed to achieve large scale adoption - and
in turn bolster prices.
"The more people that adopt it and use it as money,
then the greater the chances of it perhaps being taken on board as a mainstream
currency," said Russ Mould, investment director of AJ Bell. "That
would feed further speculative interest."
The rush in 2021 by retail and institutional investors comes
on top of a 300% rise last year as investors searched for high-yielding assets
and dollar alternatives amid rock-bottom or even negative interest rates
globally.
The meteoric rise of bitcoin, which traded at a few hundred
dollars only five years earlier, has also led major investment banks to warn of
a speculative bubble.
Bitcoin's rise "blows the doors off prior
bubbles," BofA said last month.
Despite the mainstream interest, cryptocurrencies remain
subject to patchy oversight globally, with the lack of regulatory clarity and
associations with crime keeping many larger investors leery of exposure.
U.S. Treasury Secretary Janet Yellen and European Central
Bank President Christine Lagarde have both called for tighter oversight of
bitcoin.
Some believe extreme volatility is a cause for concern.
"Due to its volatility, bitcoin lacks many of the
established qualities that make up 'money', such as being a stable store of
value and unit of account," said George Lagarias, chief economist at
Mazars.
Graphic: Bitcoin crosses $50K -
https://fingfx.thomsonreuters.com/gfx/buzz/oakvermrepr/Pasted%20image%201613479653838.png
DIGITAL GOLD?
Also boosting bitcoin are suggestions that its limited
supply of 21 million could drive further gains for the virtual asset.
A narrative of bitcoin becoming "digital gold" has
gained traction as investors predict looming inflation amid massive central bank
and government stimulus to counter COVID-19.
St. Louis U.S. Federal Reserve President James Bullard told
CNBC on Tuesday that bitcoin's claim to be a gold rival would not threaten
greenback dominance.
"Investors want a safe haven, they want a stable store
value and then they want to conduct their investments in that currency,"
he said. "It's very hard to get a private currency - it's really more like
gold - to play that role."
JPMorgan said in January that bitcoin emerged as a rival to
gold and could trade as high as $146,000 if it becomes an established
safe-haven.
U.S. business intelligence software firm MicroStrategy Inc,
whose CEO is a strong bitcoin proponent, on Tuesday said it would issue $600
million in convertible notes to buy additional bitcoin.
Meanwhile, smaller cryptocurrency ethereum fell 2.42%, after
earlier rising to $1,826, just shy of its record high price of $1,875.
With cryptocurrencies collectively worth about $1.5
trillion, some investors caution about the value of owning them.
"As an intangible asset with no yield or practical use,
save for a few organisations who accept it as payment, it is really just demand
(against a predictable supply) which determines its price," said Mazars'
Lagarias.
"But whereas the price of bitcoin has risen to the
skies, what value one gets from holding it in a long-term portfolio still
remains subject of much debate."
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