The price of bitcoin rose by as much as 7% on Thursday after Elon Musk posted a vague tweet with a reference to dogecoin and an image of a crypto-themed ring.
The digital asset rose by $4,000 to trade around $48,000 at 9:40 a.m. ET, after it was stuck around $43,800 the previous day.
In his tweet, Musk said: “Frodo was the underdoge, All thought he would fail, Himself most of all,” seemingly in a reference to the Lord of the Rings trilogy. Dogecoin saw only a 0.8% jump to $0.07, but it’s still up 1300% year-to-date.
“These are just the early innings of corporate adoption, as digital currencies are beginning to play a larger role in robust balance sheet management,” said Nathan Cox, chief investment officer at investment firm Two Prime.
One analyst said Tesla’s decision was a massive win for the crypto crowd and acceptance within the financial community is what it has long sought – and this move ticks both of those boxes.
“It seems that one thing more powerful than Elon Musk’s Twitter account is the financial power of the company he co-founded and leads,” said Craig Erlam, senior market analyst at OANDA. “I’m a little surprised it wasn’t enough to push $50,000 if I’m honest, but it’s surely only a matter of time. There doesn’t appear to be much appetite to sell at this point.”
The electric-car maker also said it would soon begin accepting bitcoin as payment for its products.
Some analysts said that while Elon Musk is a relatively late adopter of cryptocurrencies, they believe this is one of several investments he will make in the space.
What 6 experts in the crypto industry said about Tesla’s purchase
Stefan George, cofounder and chief technology officer at the prediction-market platform Gnosis
“Tesla’s bitcoin acquisition is a strong signal for a new era of integration between the cryptocurrency ecosystem and mainstream business, in which tokens increasingly act as not only a store of value but tangible medium of exchange.”
Dermot O’Riordan, partner at the blockchain-focused private-equity firm Eden Block
“This moment will likely be looked upon in years to come as a genuine tipping point; Elon and Tesla’s support legitimizes crypto and opens up bitcoin to a whole new class of retail and institutional investors. Now it seems all of Wall Street is in bed with this industry – if they weren’t paying attention before, they are now.”
Antoni Trenchev, cofounder and managing partner at the crypto lender Nexo
“Tesla and Bitcoin – the archetypes of volatility – inevitably meet again because they are tools that came about because of frustration and courage, to paraphrase the old saying. Frustration at the way things are, and courage to make sure that they do not remain as they are.”
Alex Mashinsky, CEO of the crypto lender Celsius Network
“The richest person in the world just told you he does not believe in holding dollars as a long term store of value. We have heard from the smartest investors in the world and now we have heard from the richest people in the world, they all agree that having 5-10% of your net worth in BTC is a critical part of a well diversified portfolio.”
Leah Jonas, head of partnerships at Celsius Network
Tesla’s investment “cements crypto into both history and the future as not only a fundamentally safe store of value, but an asset with an infinite amount of applications yet to be discovered. I see this as the door opening wide for crypto companies with B2B services, like my companies, to put their products to the test and usher in the next wave of adoption in partnership with Tesla.”
Jean-Michel Pailhon, head of the ledger enterprise at Ledger, a security-solutions firm for crypto assets
“Tesla’s move further gives the industry validation and shows crypto’s resiliency as an asset class. The battle of custody and safeguarding these volatile assets will be the next thing to watch. Tesla could either pull it off with an in-house solution though they may suffer from inflexibility compared to other infrastructures.”
Bitcoin has more than doubled in less than a month, leaving analysts and investors stunned and concerned about a possible market bubble.
In many ways the token’s rally in recent months is crucially different than the surge seen three years ago, as buyers now range from casual day traders to fund managers handling billions of dollars in assets.
Easy monetary conditions and trillions of dollars in fiscal stimulus have led some investors to view the token as a new inflation hedge.
Detailed below are the factors driving bitcoin higher, and why experts don’t think the cryptocurrency will crash as it did in 2017.
It took nearly 11 years for bitcoin to reach $20,000 per coin for the first time in 2017. Just 22 days later, the world’s most popular cryptocurrency has surged another $20,000, and its momentum is so far holding strong.
Bitcoin’s rapid climb back in 2017 was swiftly followed by sell-offs that erased the bulk of its quickly earned gains. But no such trend has emerged this time around, and experts say a combination of factors fueled the token’s surge through 2020 and will continue to boost bitcoin in the new year.
Detailed below are three reasons behind bitcoin’s price spike, and a discussion of why it’s unlikely to suffer a crash similar to that seen two years ago.
(1) Fear of missing out
While passionate retail investors powered bitcoin’s 2017 rally, public companies sparked the token’s latest climb. MicroStrategy started a chain reaction when it bought $425 million worth of bitcoin in August and September, Jimmy Nguyen, president of the Bitcoin Association, told Insider. The move opened the door for other public companies to view bitcoin as a viable reserve asset.
Square followed in October with its own $50 million purchase. Still, it wasn’t until PayPal adopted bitcoin that prices began to rocket higher. The company announced on October 21 that it would allow its hundreds of millions of users to buy, sell, and hold bitcoin. The token leaped to its highest level since July 2019 as investors saw the adoption as a key step forward for bitcoin’s widespread use.
“People are seeing a move to it as a reserve asset, knowing there’s a limited supply of Bitcoin, and saying, ‘okay, I want my piece of it before it goes too high in price,” Nguyen said.
The subsequent rise in bitcoin prices then pulled institutional investors into the fray. Fund managers who previously balked at the token and its violent price swings feared they were missing out on strong returns and began shifting some cash into the cryptocurrency.
Institutional investors have since pushed billions of dollars into the cryptocurrency market. Their involvement has played the biggest part in the token’s meteoric rise through the end of 2020, according to Douglas Borthwick, chief marketing officer at digital-asset trading platform INX.
“If you don’t have something in your portfolio that’s performing well, then you’re not going to perform well. People are going to leave your fund,” Borthwick told Insider. “You’ve got larger and larger position sizes chasing a smaller and smaller number of bitcoin in circulation.”
(2) Demand for inflation hedges
Bitcoin may first seem completely disconnected from the coronavirus pandemic, but the health crisis’ fallout has played a critical role in supporting token prices. Governments around the world passed several trillion dollars worth of fiscal stimulus to pad against the pandemic’s economic damage.
The influx of fresh currency and easy monetary conditions boosted the case for bitcoin as a hedge against inflation, JPMorgan analyst Nikolaos Panigirtzoglou said in November. A limited supply of 21 million tokens and insulation from policy decisions saw the token serve as an alternative to gold and other hedge assets.
“That money printing has meant that everyone in the world has been searching for hard assets to invest in, something that isn’t going up in terms of supply,” Borthwick said.
Companies and institutional investors warming up to bitcoin has given legitimacy to an asset recently known more for its murky uses than its investment potential. During the token’s 2017 rally, those less familiar with cryptocurrencies associated them with “nefarious activities,” Borthwick said.
PayPal’s adoption and the influx of institutional funds lend bitcoin new legitimacy and interest among retail investors, Borthwick added. And just yesterday, the US Office of the Comptroller of the Currency said national banks can use blockchain networks and stablecoins for payments, further legitimizing digital currencies.
“The more big names get involved in the space and the more regulators start writing regulations about it, the more it becomes a mainstream asset,” Borthwick said.
Curiosity among everyday investors exploded through the end of last year. Global search interest for bitcoin more than tripled from early October to early January, according to Google Trends data. Celebrities ranging from actress Maisie Williams to rapper Meek Mill have tweeted about entering the cryptocurrency market. In a matter of months, the crowd pushing cash into bitcoin has evolved from fund managers and crypto-fanatics to practically everybody else, Borthwick said.
“There’s an absolute land rush to get invested in the crypto space,” he added. “It’s no longer friends and family and old friends from college.”
Bitcoin’s rapid doubling has naturally prompted some investors to deem the token a bubble. JPMorgan said Monday that the token’s rally moves it “into more challenging territory,” and that a continued climb at its current pace would likely “prove unsustainable.”
The market very well may be “prone to a sort of correction,” but it’s unlikely to resemble that seen three years ago, Nguyen said. Institutional investors are poised to maintain their bitcoin positions for fear of prematurely selling and missing out on additional returns.
Growing interest in blockchain and cryptocurrencies also protects prices from returning to the recent lows, Borthwick said
“What you’re talking about here is the adoption of something by everybody in the world over a very short period of time,” he said. “When you talk about a new technology, I don’t think there ever is such a thing as a top.”
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