Bitcoin surged to yet another record high on Wednesday, a day after the virtual currency vaulted to the $50,000 hurdle, even as analysts warned against the sustainability of such prices amid elevated volatility.
Bitcoin has risen eightfold since last March and has added more than $700 billion in market value since September. JPMorgan questioned the “magnitude” of the jump on the back of a total flow of just $11 billion from institutional investors.
Its limited supply – based on “miners” producing a set number of new coins – has led to holders charging a premium on bitcoin coming to market, JPMorgan analysts said in a note. Retail flows may have also magnified institutional flows, they said.
“Bitcoin will be very volatile for a very long period of time, but with what’s occurring with central banks, its attraction is based on macroeconomics,” said Pat LaVeccchia, co-chairman and chief executive officer at broker-dealer Oasis Pro Markets.
“As I look at news that Morgan Stanley, Paul Tudor Jones, and Stanley Druckenmiller, who couldn’t be more traditional, are all exploring or investing in bitcoin from a diversification standpoint, then it seems bitcoin is here to stay even if it drops back to $30,000 or $20,000,” he added.
BlackRock’s chief of global fixed income, Rick Rieder, told CNBC on Wednesday the world’s largest asset manager has started to “dabble a bit” in bitcoin.
Anthony Scaramucci, founder and managing partner of hedge fund SkyBridge Capital and former communications director under the Donald Trump administration, also told CNBC in Wednesday he sees bitcoin hitting $100,000 per unit before the year ends, citing supply and demand. SkyBridge is also invested in bitcoin.
Currently, around 78% of issued bitcoins are either lost or being held with very little intent to sell. This leaves less than 4 million bitcoins to be shared among future market entrants – including large institutional investors such as PayPal, Square, S&P 500 companies, and exchange traded funds, blockchain data provider Glassnode said.
Bitcoin’s prices though aren’t sustainable unless its volatile price swings cool down quickly, said the JPMorgan analysts, who last month flagged the asset’s emergence as digital gold.
“Bitcoin, at current market prices, has already more than doubled relative to gold in risk capital terms,” they said, pointing to the digital coin’s three-month realized volatility, at 87% versus 16% for gold.
Graphic: Bitcoin and other crypto currencies surge: