The digital currency has a market value north of $ 500 billion. Do you think Bitcoin is just a fad? It is worth more than Visa (V) or Mastercard (MA). Or Walmart (WMT).
Bitcoin surpassed $ 20,000 for the first time just 11 days ago. Now knock on the $ 30,000 door.
Its rapid rise has been noticeable, or crazy, depending on your risk appetite. But there is some logic ahead: investors are investing money in bitcoins and other cryptocurrencies during the Covid-19 pandemic, as the Federal Reserve sent interest rates close to zero (and hopes to keep them there for a few more years), severely weakening the US Dollar.
This makes bitcoin, by comparison, an attractive currency. There is a fixed limit on the number of bitcoins on the planet and investors believe that once supply is exhausted, the value of the digital currency can only increase.
It also helps increase the valuation of Bitcoin: large brand investors are storing it and huge consumer companies are accepting it. This means adding a dose of validity and attractiveness to the cryptocurrency for major investors. For example, a senior executive of BlackRock (BLK) recently said that cryptocurrency can replace gold, and Square (SQ) i PayPal (PYPL) both have adopted bitcoin.
As bitcoin rises to historic highs, cryptocurrency brokerage Coinbase, the most prominent cryptocurrency exchange, has signaled its intention to go public.
However, the recent rise in cryptocurrencies shows signs of a thaw: an excess of enthusiasm fueled by the fear of getting lost, not just the fundamentals of the market. Take Elon Musk’s sarcastic tweet about Bitcoin rival Dogecoin last week: the digital currency, which was built as a parody of cryptocurrency, shot up 20% immediately after Musk backed it on Twitter.
Anhony Scaramucci, founder of Skybridge Capital, has a large stake in Bitcoin, but even he says people should be vigilant. He told CNN Business earlier this month that it could be a solid addition to the average investor portfolio, but it needs to have a stomach.
On CNN Business’s live show “Markets Now” earlier this month, Scaramucci said people have started accepting bitcoins and, as he appears in so few wallets, he has plenty of room to grow. However, bitcoin is a volatile asset and will be a risky stake if you invest in it.
“That tends to crash,” he said. “A correction needs to be made and those corrections can be violent.”
Scaramucci said Bitcoin could suddenly fall from 20% to 50%.
“You have to be very careful,” he added.
But he also highlighted the permanence power of Bitcoin over the past decade: if he took $ 1 and put 99 cents in cash and a penny in bitcoin, this investment strategy would have surpassed the $ 1 invested in S&P 500 (SPX) for the past ten years, he noted.
“The best days of Bitcoin are ahead, but it will be volatile and I think people need to be prepared for that,” Scaramucci told CNN Business.
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