Explaining the Bitcoin Surge
Welcome to the Capital Note, a newsletter about business, finance and economics. On the menu today: bitcoin surging, Senate rejects sound money, and schools close in New York City.
Bitcoin $20,000?
Bitcoin is usually billed as a hedge against global calamity. Something akin to digital gold, the cryptocurrency’s fixed supply shields it from macroeconomic volatility. But the coronavirus sell-off earlier this year hit bitcoin as hard as it did stocks and bonds. And now, as the global economy appears poised to recover from the pandemic, bitcoin is approaching record highs. That’s not what you’d expect from a doomsday hedge.
The cryptocurrency surpassed $18,000 today, up nearly 150 percent this year and approaching its late 2017-peak when cryptomania sent the price of the digital currency above $20,000. The surge is a result of increased adoption by corporations and financial institutions, which now see sufficient demand for crypto to include it in product offerings.
Payments company Square generated more than $1 billion from bitcoin sales in the first two quarters of 2020 alone. Last month, PayPal included Bitcoin in its offerings, allowing consumers to fund purchases with cryptocurrency.
Consumers have various reasons for purchasing bitcoin on large fintech platforms. There is a niche but sizable pool of buyers that just likes crypto — for aesthetic reasons (think libertarian-minded computer geeks who like bitcoin’s underground mythos) or for practical reasons (gambling, purchasing contraband) or for “financial” reasons (get rich quick). These are not the doomsayers concerned about the integrity of the global financial system: If you thought the world were collapsing, you wouldn’t want a large corporation to be the custodian of your big hedge.
So as consumer demand picks up, demand for bitcoin will follow. That’s part of why the cryptocurrency is correlated with stocks and bonds. And while there are sophisticated financial buyers who seem to see bitcoin as an investment, they see it less as digital gold than as a risky consumer technology to speculate on. Paul Tudor Jones, the billionaire hedge-fund manager who endorsed bitcoin earlier this year, compared it to “investing with Steve Jobs and Apple or investing in Google early.”
Be the first to write a comment.
