The digital currency has a market value of north of $ 500 billion. Do you think Bitcoin is just a fad? It’s worth more than that Visa(V.) or MasterCard(MA). Or Walmart(WMT).
Bitcoin first passed $ 20,000 11 days ago. Now it knocks on the $ 30,000 door.
The rapid rise was remarkable – or insane, depending on your willingness to take risks. But there’s some logic behind the run: 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 hold them there for several more years), pushing the US dollar.
That makes bitcoin an attractive currency in relative terms. There is a fixed limit to the number of bitcoins on the planet, and investors believe that if the supply runs out, the value of the digital currency can only go up.
Also help in bitcoin’s rising valuation: big name brand investors are stocking it and huge consumer companies are embracing it. That adds a dose of validity and appeals to cryptocurrency for mainstream investors. For example a top man at Black rock(BLK) recently said the cryptocurrency could replace gold, and Square(SQ) and PayPal(PYPL) have both embraced bitcoin.
As bitcoin soars to record highs, cryptocurrency brokerage Coinbase, the most prominent cryptocurrency exchange, has indicated that it plans to go public.
Still, the cryptocurrency’s recent boom is showing signs of a melt-up – over-enthusiasm fueled by fears of missing out, not just fundamental market conditions. Take Elon Musk’s sarcastic tweet about bitcoin rival Dogecoin last week: The digital coin, itself constructed as a cryptocurrency parody, shot up 20% immediately after Musk threw his support behind it on Twitter.
Anhony Scaramucci, the founder of Skybridge Capital, has a major stake in bitcoin, but even he says people should be wary. He told CNN Business earlier this month that it could be a solid addition to the average investor’s portfolio, but you have to have the courage to do it.
On CNN Business’s live show “Markets Now” earlier this month, Scaramucci said people have started to accept bitcoin – and since it appears in so few wallets, it has plenty of room to grow. Still, bitcoin is a volatile asset and will be a risky position if you invest in it.
“This thing has a tendency to collapse,” he said. “It is in need of a correction, and these corrections can be violent.”
Scaramucci said bitcoin could suddenly drop 20% to 50%.
“You have to be very careful,” he added.
But he also highlighted bitcoin’s staying power over the past decade: if you took $ 1 and put 99 cents of it in cash and one cent in bitcoin, that investment strategy would have outperformed $ 1 invested in the S&P 500(SPX) over the past 10 years, he noted.
“The best days of Bitcoin are just around the corner, but it will be fleeting and I think people should be prepared for it,” Scaramucci told CNN Business.
