Bitcoin surged on Monday to set its first fresh record in nearly three years, driven by a wave of new investors lured by the potential for big profits.
The digital currency rose as high as $19,834.93, according to CoinDesk, topping the previous intraday record of $19,783.21 set Dec. 18, 2017. Bitcoin has nearly tripled in 2020 and is up more than 90% since early September. It closed Monday at $19376.18, up 6.1%. The surge comes amid a wider rally across markets. The Federal Reserve and other central banks have injected trillions worth of liquidity into the capital markets, and a number of companies working on coronavirus vaccines are providing hope that the global pandemic will soon be brought under control.
With safe assets like government bonds yielding close to zero, investors have been more willing to place bets on risky assets in hopes of reaping big gains, and bitcoin is among the riskiest assets in the capital markets. “You have the weakened dollar, enormous growth of central bank balance sheets and questions about whether it will or won’t cause inflation,” said Société Générale forex strategist Kit Juckes. “It’s another beneficiary of the collapse in real yields.”
Trading volume for bitcoin has surged in the past few months, to $50 billion a day from around $18 billion a day in September, according to data from research site Coingecko. Other cryptocurrencies have benefited from the interest as well. Ether is up 370% this year. XRP is up more than 234%.
Bitcoin’s gains have been fueled by both retail and professional investors, and a plethora of platforms that make it easy to trade cryptocurrencies.
On the retail side, online platforms like Square Inc.’s Cash App, Robinhood and PayPal Holdings Inc. allow users to buy and sell bitcoin directly within their apps. For professionals, financial firms like CME Group Inc. and Intercontinental Exchange Inc. both operate derivatives markets. Fidelity Investments Inc. has a digital-assets group for investors. There are also a number of over-the-counter funds, similar to exchange-traded funds.
Still, for all the attention, bitcoin remains a small market. With the current rally, the total market value of bitcoin in circulation is about $362 billion. By comparison, the size of the investment market for gold was about $11.9 trillion at the end of 2019, according to the World Gold Council.
Bitcoin, unveiled on Halloween 2008 and launched in January 2009, was designed to operate as a digital version of cash that would be outside the control of governments or banks. Its software runs on a network of linked but independent computers. Anyone can download and run the program to become part of the network, but no party has control to make unilateral changes.
This prevents counterfeiting and ensures that one of the program’s core features can’t be easily changed: a limit of 21 million bitcoins that can be created. This limit is what gives bitcoin a preset rate of inflation, which steadily decreases as more bitcoins are minted and circulated. It is this feature that leads some to claim bitcoin is a digital version of gold.
There are about 18.5 million bitcoins currently in circulation.