This photo shows signage for Bitcoin at a booth at the Hong Kong Fintech Week in Hong Kong, China, Nov 4, 2021. (PAUL YEUNG / BLOOMBERG)
Bitcoin and Ether hit all-time highs Tuesday in an ongoing cryptocurrency rally that some analysts attributed partly to the search for investments to hedge risks from inflation.
Bitcoin, the world’s largest digital token, jumped as much as 3.6 percent to $68,513, while Ether posted a more modest advance to about $4,825. The total value of digital tokens tracked by CoinGecko reached some $3.1 trillion.
Record-low real yields may also be stoking an appetite for riskier investments, potentially pushing some markets to perilous levels. The Federal Reserve in a report warned asset prices are vulnerable if sentiment sours
Trying to work out why virtual currencies are rallying is often a fraught task, but some theories pointed to the appetite for assets that can deliver returns even as the pandemic recovery stokes inflation. Bitcoin is up more than 130 percent this year and Ether some 550 percent, though for critics the volatility inherent in digital tokens damages their claims to being a store of value.
Inflation hedges are “in demand with crypto leading,” Chris Weston, head of research at Pepperstone Financial Pty, wrote in a note, adding that “crypto is where the fast money is at.”
Record-low real yields may also be stoking an appetite for riskier investments, potentially pushing some markets to perilous levels. The Federal Reserve in a report warned asset prices are vulnerable if sentiment sours. It also flagged dangers from stablecoins, a type of token supposed to have a steady value.
Bitcoin last scaled a record in October following the launch of the first Bitcoin-linked exchange-traded fund for US investors. The landmark step fed the narrative that virtual coins are winning greater mainstream acceptance, including from institutional investors.
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‘Final’ push higher
“This breakout in Bitcoin might signal the start of a final push-up for the fourth quarter before the crypto market shows more pronounced consolidation into next year,” Fundstrat said in a technical-strategy report Monday. “Strength in Bitcoin, Ethereum and many other altcoins looks likely in the weeks to come.”
Another theory for the Bitcoin rally is the seemingly ubiquitous Elon Musk, the world’s richest man. Musk’s Twitter followers in a poll he set up voted in favor of the billionaire selling 10 percent of his stake in electric-carmaker Tesla Inc.
That brings up the question of what he might do with the proceeds. Musk has previously said he’d like to see Bitcoin succeed and that he personally has bought Bitcoin, Ether and Dogecoin
Michael Saylor, the chief executive at MicroStrategy Inc, mentioned the claimed benefits of Bitcoin in a reply to Musk’s poll tweet. Converting Tesla’s balance sheet to Bitcoin “would deliver diversification, inflation protection, & more upside for all investors in a tax efficient manner,” he said.
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The little more than decade-old market for digital assets has roughly quadrupled from its 2020 year-end value. Some technical indicators suggest the Bitcoin ascent may be due a pause, according to Katie Stockton, founder of Fairlead Strategies LLC.
Bitcoin aside, more people are being drawn to the crypto economy for so-called decentralized financial services as well as non-fungible tokens, which allow for digital collectibles like online art.
Blockchain networks like Ethereum and Solana continue to upgrade to deliver such functionality. Meanwhile, memecoins including Dogecoin and Shiba Inu attract speculative traders.