Bitcoin, the leading decentralised cryptocurrency is once again thriving after hitting an all time high price of nearly $68,000 yesterday – up more than 10 percent this week and over 50 per cent since the beginning of October 2021.
Against the backdrop of The Bank of England’s decision last week to hold interest rates at 0.1% the prospect of inflationary pressures are present. Such excessive cryptocurrency returns are therefore a welcome boon for the torrid plight of investors in search of positive real yields from an increasingly barren landscape of traditional asset classes.
The cryptocurrency market is clearly hot but is it too hot, and how far can Bitcoin’s price go?
Perhaps it is time to look backwards before we look forwards. As the great American columnist Sydney J. Harris once penned, ‘history repeats itself, but in such cunning disguise that we never detect the resemblance’.
On the December 2 1980 a similar albeit centralised tech innovator was causing comparable head scratching for investors and regulators alike. On this date Apple IPO’d 4.6 million shares at $22 per share. A market capitalisation at the time of $101 million.
Fast forward 40 years and Apple is now the second largest company in the world valued at $2.5 trillion, narrowly missing out on top spot to Microsoft ($2.53 trillion). That represents a capital gain of 25 times investment notwithstanding dividend income. Not too shabby, albeit with the benefit of hindsight and not accounting for survivorship bias.
At the time of Apple’s IPO, Massachusetts regulators were so worried about this new and ‘risky tech stock’ that they banned individual retail investors from owning it.
The challenge for our regulators today is how to embrace Bitcoin whilst protecting security, minimising the tax gap and preserving the primacy of fiat currencies? To achieve all of this but not at the expense of innovation is a Gordian Knot that will take some cutting!
Apple was the vanguard of the dot.com darlings at the turn of the millennium. In fact, today U.S. tech equities are worth more than the aggregate value of all European stock markets. But, as Web 3.0 and the 4th Industrial Revolution gather pace, are cryptocurrencies such as Bitcoin now worth another look by regular investors?
Bitcoin’s total market value is currently $1.3 trillion – almost the same as Tesla and more than Meta (Facebook) ($949b), JP Morgan ($497b) and Alibaba ($431b). Note, that the total value of all cryptocurrencies exceeded $3 trillion for the first time yesterday, albeit that there are near fourteen thousand alt coins included in this number alongside Bitcoin.
Nonetheless, cryptocurrencies are banned or restricted in many countries such as China, Russia, Turkey and Egypt to name but a few. Many leading figures in the U.S. and Europe are calling for similar action here. Keeping technological innovation at bay is folly akin to King Canute and the incoming tide. The question of some meaningful cryptocurrency adoption may better be phrased as when and how rather than if.
It is difficult to predict how far the Bitcoin price can go. Existential attack from a quantum computer or similar is always a possibility. Not least due to recent advancements in quantum computing by researchers at The University of Science and Technology of China. No technology is so robust as to be beyond the wit of humankind who created it.
On balance however, the Bitcoin price can likely go further and therefore represents a credible contender for a small asset allocation by any investor who claims to be fully diversified.
Bitcoin is now the 13th largest currency in the world by market capitalisation, recently leapfrogging The Swiss Franc. It can make top-10 IMHO but the path there will likely be volatile. There are many unknown unknowns still. Seat belts on. If nothing else ‘cryptocurrency is fun,’ as one of my postgraduate students at The University of Liverpool reminded me earlier this week.
Enjoy the ride but mind the gap.