28 February 2021
Source: Bloomberg & Momentum Global Investment Management
What this chart shows The chart shows the price of the cryptocurrency Bitcoin over time, from $122 in September 2013 to over $55,000 last week. The digital currency’s initial sharp rise began in 2017, before falling back until its latest rally starting in October 2020. Bitcoin’s price has increased six-fold in the last year and its market size reached $1 trillion over the last weekend.
Why this chart is relevant
The sharp rise in the value of Bitcoin has led many to question whether they should invest in this relatively new asset class and has certainly created a FOMO (fear of missing out) effect in recent months. One prominent question is whether Bitcoin can reasonably be considered as a store of value, and alternative to fiat currencies. Despite Bitcoin’s accelerating adoption, including in the institutional arena, there is still a risk that it will be overtaken by other cryptocurrencies or that increased popularity leads to regulation enforced by governments.
Another related issue is its volatility profile compared to other asset classes. For example, following a tweet last month from Tesla CEO Elon Musk that the company had invested $1.5bn in the cryptocurrency, Bitcoin’s price rose by 17%. A tweet from Musk this past weekend saying that the price does “seem high” was followed by a 13% fall from Friday 19th to Tuesday 23rd February. We believe it can only be viewed as a speculative asset for now, with asset classes like gold and inflation linked bonds much more reliable in a multi asset portfolio.
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