Bitcoin joins ranks of safe-haven assets as it surges to new record

Debate continues to rage over the digital asset’s true value and utility.

‘Safe-haven’ Bitcoin hits record. Picture: AFP

Virtual currency bitcoin has soared to a new high, heading towards $US20,000 ($27,150) per coin as debate continues to rage over the digital asset’s true value and utility.

Bitcoin was as low as $US5450 in March when global markets plummeted due to Covid-19, but has since tripled in value with payment giants PayPal and Square now allowing their customers to buy and sell the cryptocurrency. In the early days of the global financial crisis, it traded at just a few cents per coin.

Tuesday saw Bitcoin rise about 8 per cent, taking its yearly rise past 150 per cent, according to data from Bloomberg.

Professor Saurav Dutta, the Head of the School of Accounting at Curtin University, said demand for bitcoins had skyrocketed due to the likes of PayPal, US investors and hedge funds diversifying their investment portfolio.

“Within weeks of venturing into Bitcoin market, PayPal is purchasing over 70 per cent of new bitcoins being mined, leading to an increase in prices,” he told The Australian.

“PayPal is the biggest tech firm to accelerate its move into the cryptocurrency space. Its wallet holders can now buy, sell and hold cryptocurrencies like bitcoin, ethereum, bitcoin cash and litecoin. Robinhood started trading in digital currency in 2018, while Square has been involved since 2019.”

Professor Dutta said small investors trying to get a piece of action in the Bitcoin market should be aware of the risks that “whales” cause by abruptly altering the market dynamics. He said typically, the “whales” are large accounts who can send orders of large magnitudes thereby swamping buy or sell orders of smaller traders, and often the whales can individually alter the market dynamics making the individual and small participants vulnerable.

“The recent surge in Bitcoin is not being fuelled by speculative fever,” he said. Buyers — led by American investors, including companies and other traditional investors — are treating Bitcoin as an alternative asset, somewhat like gold, according to an analysis from the data firm Chainalysis.

“Rather than quickly trading in and out of it, more investors are using Bitcoin as a place to park part of their investment portfolios outside the influence of governments and the traditional financial system. Hence this price increase is likely to be sustainable.”

Bitcoin has joined the ranks of safe-haven assets, as some investors avoid so-called risky assets like stocks. US Treasuries, gold, and the Swiss Franc have been considered safe-haven assets.

A recent Tokenist survey found 47 per cent of respondents said they trust bitcoin more than the big banks, while 44 per cent of Millennials said they expect to buy bitcoin within the next five years.

Central banks have responded to Bitcoin's rise by announcing their own bank-backed digital units that would be “risk free” like fiat banknotes. Facebook too is producing its own digital unit, Libra, which is set to launch in January 2021.

A number of central banks have responded to the rise of cryptocurrencies and the dwindling global use of cash by announcing plans for bank-backed digital units that would be “risk free” like fiat banknotes and coin.

Several central banks including those of China and Sweden - but also the US Federal Reserve – are also testing digital applications in response to Facebook’s recent moves to produce its own digital unit, Libra.