Bitcoin surges to 3-year high amid analysts’ caution

Bitcoin surged to a 3-year high of $17,891 – its highest level since December 2017 – on Wednesday after surging almost 10% over the past 24 hours.

The world’s most valuable cryptocurrency, Bitcoin is often lambasted by critics for its historically unreliable price. In March this year, it was trading at just $5000, but in the ensuing market turbulence investors have increasingly turned to Bitcoin in the hopes it will weather the volatility.

When markets prove erratic, investors tend to move their money out of shares and into what are considered “safe havens” – like cash and gold.

Although not a typical “safe haven” asset, Bitcoin has bucked expectations and increased in popularity in what analysts are attributing to the combination of extreme market uncertainty due to the ongoing pandemic and brewing geopolitical tensions.

They suggest that cryptocurrencies are now being viewed as a “shelter” from stock market volatility.

Edward Moya, from currency trading firm Oanda, explained:

“Covid-19 has disrupted the traditional safe-haven trade and gold’s inability to outperform. Periods of extreme risk aversion have forced many traders to diversify into Bitcoin”.

The fixed supply cap of 21 million Bitcoins leads some to believe that their scarcity makes them innately valuable, potentially shielding the currency from factors such as inflation.

However Shane Oliver, head of investment strategy and chief economist at AMP Capital, warned about making sweeping assumptions on Bitcoin:

“Its huge volatility hardly makes it a safe haven as a store of value. I have far more confidence in the $50 note in my wallet retaining its value over time than Bitcoin, which seems to bounce around like a yo-yo”.

Eric Demith, co-founder of cryptocurrency firm Bitpanda, said that the current Bitcoin price hike is mainly down to institutional money, but added that consumer interest is beginning to pick up according to recent Google Search trends.

“We’re constantly seeing large numbers of daily signups from retail customers joining the crypto market for the first time,” Mr Demith said. “What we’re currently experiencing is a mentality shift where the younger generation see bitcoin as the gold of their generation”.

But Oanda’s Mr Moya warned traders to prepare for more volatility in the coming months, as Bitcoin’s price is expected to waver again:

“The amount of hedge funds and high-frequency trading systems driving Bitcoin higher will likely deliver exaggerated moves once its price nears the $20,000 level. Traders need to expect $1,000 swings in a matter of minutes”.

He added that the current headlines lauding Bitcoin’s price surge are peaking interest in people who would not normally invest in cryptocurrencies, driving the value higher, but that people still are generally cautious about cryptocurrencies.

There are widespread concerns about fraud following a spate of high-profile hacks.

AMP Capital’s Oliver is still not convinced: “I think most people would put more faith in a digital currency run by their government rather than one like Bitcoin that they have trouble understanding or explaining”.