In the world of investments this year, few assets have captured attention like Bitcoin. After breaking through the $50,000 barrier, Bitcoin continued its upward trajectory, reaching a new record high of over $56,000 in the early hours of February 20, UTC. This surge pushed its total market capitalization past the $1 trillion mark.
At the time of writing, Bitcoin's price had retraced slightly to $55,567.50, with a gain of 7.15% for the day, and a total market value of $1.04 trillion. This valuation places it just behind Google ($1.4 trillion) and above Tesla ($750 billion), ranking it as the fifth-largest asset by market cap if it were a U.S. stock.
To put this into perspective, Bitcoin's total market value is equivalent to 2.17 times that of Kweichow Moutai, based on Moutai's closing price on February 19.
Data from Bitcoin Home reveals the volatile nature of this market. Within a 24-hour period ending at 06:50 on February 20, 131,645 traders faced liquidations in Bitcoin contracts, totaling $841 million (approximately ¥5.428 billion RMB). In just one hour, liquidation amounts reached $16.318 million (around ¥105 million RMB).
Key Drivers Behind the Rally
Bitcoin's impressive rally has been supported by a series of positive developments. In early February, Canadian regulators approved the launch of the world's first Bitcoin exchange-traded fund (ETF), marking a significant milestone for digital asset trading.
Simultaneously, several high-profile figures and institutions have publicly expressed support or shifted their stance on Bitcoin.
Institutional Endorsements and ETF Launch
For many retail investors, directly purchasing cryptocurrencies can be challenging due to high barriers, complex processes, and security risks like hacking and key loss. The introduction of Bitcoin ETFs lowers these barriers significantly.
On February 18, the Purpose Bitcoin ETF (ticker: BTCC) debuted on the Toronto Stock Exchange, becoming North America's first Bitcoin ETF. On its first day, it saw tremendous activity, with total volume reaching 9.3 million shares and trading value hitting $145 million, making it one of the top ten most traded securities on the exchange that day.
Market observers believe this development will make it easier for retail investors to gain exposure to Bitcoin. Many also anticipate that a U.S.-listed Bitcoin ETF may soon follow, especially as more Wall Street leaders warm to the idea.
Cathie Wood, CEO of ARK Investment Management, famously known as the "Queen of Bull Markets," published a research note suggesting that if all S&P 500 companies allocated just 1% of their cash to Bitcoin, its price could rise by $40,000. A 10% allocation could push the price up by $400,000.
Dan Bin, chairman of Oriental Harbor Investment Management, a prominent Chinese private equity firm, publicly agreed with this outlook. In a recent social media post, he stated, "I have bought 1% of Bitcoin ETF基金. Although it's a bit late, I am putting my belief into action! I hope to maintain curiosity about new things."
He further elaborated, "As Tesla begins accepting Bitcoin as payment, its value could be further elevated. There will only ever be 21 million Bitcoin, and as of July 13, 2020, 15.85 million have already been mined. If long-term holders increase or more companies like Tesla join in, reaching ARK's 'Bull Queen' prediction of $400,000 is highly possible."
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Influential Voices Turning Bullish
Elon Musk, CEO of Tesla and SpaceX, has been a vocal supporter. After Tesla revealed a $1.5 billion Bitcoin purchase and plans to accept it as payment for electric vehicles, Musk commented on social media, "Tesla's action is not directly reflective of my opinion. Bitcoin is simply a less dumb form of liquidity than cash. For an S&P 500 company, holding some Bitcoin is risky but bold."
He added, "When fiat currency has negative real interest rates, only a fool wouldn't look elsewhere. Bitcoin is almost as bs as fiat money. Key word is 'almost'."
Other notable figures have also changed their tune. Jeffrey Gundlach, CEO of DoubleLine Capital, known as the "New Bond King," has joined the bullish camp. Previously a long-time gold bull and dollar bear, he now holds a neutral stance on both, stating, "Bitcoin is a better version of gold." He believes that in an era of massive liquidity injection, Bitcoin could become the next "stimulus asset."
Even Microsoft co-founder Bill Gates, who once criticized Bitcoin and said he would short it if possible, has shifted to a neutral position. In a recent interview, he mentioned, "I don't own Bitcoin, and I haven't shorted it. So, I take a neutral view."
A Word of Caution from Industry Experts
Despite the growing optimism, many financial experts and economists urge caution, warning that Bitcoin is not a foolproof hedge and may be in a bubble.
Nouriel Roubini, a renowned economist nicknamed "Dr. Doom," told the Financial Times on February 10, "Bitcoin is not a hedge against risk. Just because Tesla's Elon Musk is buying Bitcoin doesn't mean everyone should follow. Given its enormous environmental cost, Bitcoin's fundamental value is negative."
He cautioned investors, "Bitcoin's price is manipulated by a bunch of whales. It has no fundamental value and is nearing a hyperbolic bubble burst."
Ray Dalio, founder of Bridgewater Associates, the world's largest hedge fund, shared his thoughts in a detailed article. He acknowledged Bitcoin as a "brilliant invention" that could potentially serve as an alternative to gold-like assets and has moved beyond a mere speculative concept. However, he also highlighted risks: while Bitcoin's supply is limited, the supply of digital currencies, in general, is not. This means a better cryptocurrency could eventually replace Bitcoin. Additionally, Bitcoin faces challenges like network risk, privacy issues, and a lack of policy support.
Yang Delong, chief economist at First Seafront Fund, commented when Bitcoin was rallying toward $40,000 that as a cryptocurrency, it had already become somewhat bubbly due to its rapid price increase. Without clear valuation metrics, it's hard to define a fair price, but the short-term surge has been excessive. He advised investors to remain cautious and avoid excessive speculation.
Frequently Asked Questions
What is a Bitcoin ETF?
A Bitcoin ETF is an exchange-traded fund that tracks the price of Bitcoin. It allows investors to gain exposure to Bitcoin's price movements without having to buy and store the cryptocurrency themselves, making it more accessible and convenient.
Why did Bitcoin's price surge so dramatically?
The price surge was driven by several factors, including the approval of the first Bitcoin ETF in Canada, increased institutional adoption (like Tesla's investment), and public endorsements from influential figures such as Elon Musk and Cathie Wood.
Is it too late to invest in Bitcoin?
While some experts believe there is still potential for growth, others caution that the market may be overheated. It's essential to conduct thorough research, understand the risks, and consider your investment goals and risk tolerance before investing.
What are the risks of investing in Bitcoin?
Bitcoin is highly volatile, with prices capable of significant swings in short periods. Other risks include regulatory changes, security breaches, potential market manipulation, and competition from other cryptocurrencies.
How does Bitcoin's limited supply affect its value?
Bitcoin has a maximum supply of 21 million coins, creating scarcity. This limited supply, combined with increasing demand, is a fundamental factor that proponents believe will drive its long-term value.
Can Bitcoin be used for everyday purchases?
While some companies, like Tesla, have started accepting Bitcoin as payment, it is not yet widely used for everyday transactions due to its volatility and scalability issues. It is primarily seen as a store of value or investment asset.