Bitcoin Hits New High, Market Cap Surpasses Tesla: Musk Effect Fuels Frenzy Amid Inflation ExpectationsOn February 9, 2021, at 8:00 AM, Bitcoin broke through its previous all-time high, reaching a peak of $47,480.8 and pushing toward the $50,000 mark
Bitcoin Hits New High, Market Cap Surpasses Tesla: Musk Effect Fuels Frenzy Amid Inflation Expectations
On February 9, 2021, at 8:00 AM, Bitcoin broke through its previous all-time high, reaching a peak of $47,480.8 and pushing toward the $50,000 mark. By 5:20 PM, one Bitcoin was trading at $46,553, with its market capitalization surpassing Tesla at $845.5 billion, moving up to the 7th spot, ahead of Facebook and Tesla. Based on the current international gold price of around $1,800 per ounce, one Bitcoin is worth roughly 1.5 pounds of gold.
This latest surge in Bitcoin's price is inextricably linked to the recent pronouncements of Tesla CEO Elon Musk, who has recently become the world's richest person. On January 29th, Musk changed his Twitter bio to "bitcoin," resulting in an 18% rise in Bitcoin's price. Subsequent to this, Musk continued to "promote" cryptocurrencies, mentioning "Dogecoin" six times in a single day on February 4th and announcing Tesla's $1.5 billion investment in Bitcoin on February 8th. The "Musk effect" rapidly ignited the market, driving a massive influx of "fans" who followed suit and purchased cryptocurrencies, propelling Bitcoin and Dogecoin prices skyward.
In addition to the "Musk effect," positive news stemming from the U.S. fiscal stimulus policy has also contributed to Bitcoin's price surge. Last Friday, the U.S. Senate approved President Biden's $1.9 trillion stimulus package. William, a senior researcher at OKEx Research Institute, believes that the main driver of the current Bitcoin bull market is the entry of high-net-worth individuals and institutional investors like Tesla. Since the latter half of 2020, entities like the insurance giant MetLife and business analytics firm MicroStrategy have been acquiring Bitcoin. According to BitcoinTreasuries data, over $6.9 billion worth of Bitcoin is currently held by publicly listed companies.
The massive Bitcoin acquisitions by traditional institutions reflect shifts in the global macroeconomic landscape. The pandemic's impact is expected to slow down global economic recovery in the coming year, while the ultra-loose monetary policies implemented by central banks have fueled inflationary expectations in financial markets. Amidst this environment of high inflation and low growth, investors are accumulating cash as a hedge against nominal capital erosion and in pursuit of higher returns, leading to a natural shift towards gold and Bitcoin.
Tesla, the company headed by Musk, also mentioned in its latest filings: "In January 2021, we updated our investment policy to provide us with more flexibility to further diversify and maximize our cash returns."
The idea that one Bitcoin can buy 1.5 pounds of gold might seem ludicrous, but the thinking within the crypto community has already shifted. Dahongfei, founder of Distributed Technology, states that Bitcoin has gradually moved away from competing with fiat currencies during its decade-plus existence and is now focusing on its value-storing capabilities. He believes that Bitcoin will likely become a form of reserve asset, similar to gold.
However, Bitcoin has distinct differences from gold. Gold embodies a consensus on value spanning millennia, while Bitcoin is based on cryptography and a decentralized network, resistant to censorship and easily transferable. It has emerged as a significant new asset in the digital wave, but it also carries a substantial bubble risk.
Statistics reveal that retail investors are more enthusiastic about Bitcoin and the cryptocurrency industry than ever before. William points out that Bitcoin is a high-risk asset, not a safe haven. As a unique asset class, Bitcoin, unlike stocks or bonds, doesn't generate any predictable cash flow. The only way for investors to see returns is through Bitcoin's price appreciation, making it more susceptible to speculative bubbles.
Market surveys frequently uncover investors leveraging their trades with 10x, 20x, or even 100x leverage, which presents significant investment risks.
Currently, opinions on Bitcoin and other virtual currencies are divided, with general consensus that future inflation and liquidity will be crucial indicators. William notes that after Bitcoin breached the $20,000 mark in December, a surge of new investors entered the market. There are signs that the market's primary players may have undergone a structural shift, possibly moving from institutional investors to smaller investors. This alteration in market dominance can significantly impact market sentiment and price trends.
Despite Bitcoin's continuous price surge, its bubble risk is becoming increasingly evident. Investors should remain rational and invest with caution, avoiding blind following and excessive leverage that could lead to exorbitant risks.
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