While some argue Bitcoin remains cheap at £93,000, critics argue it’s a house of cards that’ll come crashing down. Sky News speaks to those on both sides of the debate.
Bitcoin is trading at all-time highs, surging beyond £93,000 for the first time.
The world’s biggest cryptocurrency has doubled in value over the past 12 months – buoyed by Donald Trump’s return to the White House.
However, its 10% surge over the past week is down to one specific factor: the US government shutdown.
Experts have told Sky News that the drama unfolding in Washington is undermining trust in the dollar – and pushing investors to alternatives.
Bitwise senior associate Max Shannon said stubbornly high inflation, which erodes spending power, is another factor.
Some countries are also increasing their monetary supply – watering down the value of cash in circulation – with government borrowing on the rise.
That’s led to what’s known as a “debasement trade”, where investors pile their cash into so-called “hard” assets like Bitcoin and gold instead.
Bitcoin has a fixed supply, meaning no more than 21 million will ever exist. Almost 95% of them are already in circulation, with a small number of coins entering the market every day.
Enthusiasts argue this creates a form of scarcity that pushes prices up, as demand for BTC is considerably higher than supply.
The latest figures from the Financial Conduct Authority suggest about seven million people in the UK have invested in cryptocurrencies. A single coin can be broken up into 100 million pieces, meaning many have a tiny chunk of Bitcoin in their portfolios.
But much of the current enthusiasm for Bitcoin isn’t coming from everyday investors – instead, it’s institutions leading the charge.
Deep-pocketed companies and individuals are buying into exchange-traded funds (ETFs) on Wall Street that track Bitcoin’s value – allowing them to gain indirect exposure to BTC’s price rises without owning it directly. A staggering $3.5bn (£2.6bn) flowed into these products last week.
Samson Mow is the chief executive of JAN3, a company that promotes Bitcoin adoption. He played a role in El Salvador becoming the first country in the world to adopt this cryptocurrency as legal tender.
While that experiment didn’t achieve widespread success, the Central American nation continues to invest in BTC – with estimated profits of more than £350m as a result.
When asked why Bitcoin has hit all-time highs, Mow told Sky News: “Bitcoin has been a ball pushed underwater for months – this move up was inevitable. Raw demand has simply caught up with the incredibly limited supply.”
He pointed to how 6.7% of Bitcoin’s supply is now tied up in ETFs – with Strategy, a company that has the goal of accruing as much BTC as possible, owning a further 3%. This means there’s less to go around overall, in what Mow describes as “the beginning of a massive supply shock”.
