Bitcoin prices continued to surge on Tuesday, when the cost of a single unit of digital currency topped $ 50,000 for the first time, down from $ 10,000 a year ago and an increase of nearly 200% in the last three months alone.
Bitcoin is recovering as more and more companies signal that the volatile digital currency could find wide acceptance as a means of payment. The vast majority of those who have purchased Bitcoin have treated it as a commodity like gold, and few places accept it in exchange for goods or services.
Companies have been suspicious of Bitcoin’s volatility and its use by parties wanting to avoid the traditional banking system for a variety of reasons. On Tuesday, the price crossed the $ 50,000 mark at least half a dozen times before 10 a.m. and crossed it again.
However, last Monday, the electric car company Tesla sent a tremor through the digital currency markets, saying it wasas part of a new investment strategy, and that it would soon accept Bitcoin in exchange for its cars.
“Not a fad”
Some Wall Street analysts believe Tesla’s move is a prelude to other large companies advocating cryptocurrencies and blockchain, the technology on which digital money is based.
“We believe the story and topic here is much bigger than just investing in Bitcoin and predicting its future price, but rather the potential impact that crypto, blockchain and bitcoin will have on the technology and business worlds for the next decade could “, so analyst Wedbush Securities told investors in a report. “From Paypal and Square to companies like Nvidia, Tesla, IBM, Visa, Mastercard and many other companies in various industries, we believe that the trend in transactions, bitcoin investments and blockchain-driven initiatives in the coming years is because of this bitcoin -Many growth, in our opinion, could not be a fad, but the beginning of a new era in the field of digital currency. “
Then Blue Ridge Bank in Charlottesville, Virginia said it would be the first commercial bank to offer access to bitcoin in its branches. The regional bank announced on Wednesday that cardholders can buy and redeem Bitcoin at 19 of their ATMs.
BNY Mellon, the oldest bank in the US, followed suit a day later and said it would include digital currencies in serving customers. Mastercard said it would start supporting “select cryptocurrencies” on its network.
Emerging asset class
While most anticipate a slow move towards widespread use of bitcoins as a currency, Richard Lyons, professor of finance at the University of California at Berkeley, said it was inevitable. Lyons predicts that Bitcoin and other digital currencies “will increasingly become transactional currencies over the next five years. It won’t happen overnight,” he said.
Lee Reiners, who teaches fintech and cryptocurrency courses at Duke University School of Law, said BNY Mellon’s move made sense because “there are now numerous high net worth individuals and mutual funds adding crypto to their portfolios as an asset class.” “
However, Reiners assumes that due to its volatility, companies will continue to hesitate to accept Bitcoin as a means of payment.
“If you were a merchant, why would you accept payment in an asset that could be worth 20% less the day after it was received?” Reiners said in an email.
Investors also have to deal with this volatility. Bitcoin’s price has risen and fallen sharply since its debut in the futures market in 2017. A year ago, Bitcoin was sold for under $ 10,000. Analysts warn that these fluctuations could destroy corporate results and put investors off.
Assuming that Tesla bought Bitcoin in January at a volume-weighted average price of $ 34,445, the company expects its investment to generate around 38% profit. However, in the regulatory announcement to unveil the investment, Tesla warned of Bitcoin’s volatility, its reliance on technology for use, and the lack of a centralized issuer like a government.
“While we intend to take all reasonable steps to secure digital assets, if any such threats are detected or the measures or controls we create or implement to secure our digital assets fail, it could result in partial or total misappropriation, or for the Loss of our digital assets. ” Assets, our financial condition and our operating results could be adversely affected, “Tesla said in the filing.
“Tesla needs to be very careful and thorough in accounting for its Bitcoin investment on its books,” said Anthony Michael Sabino, professor of law at St. John’s University. “As with any financial asset other than actual cash, it can fluctuate.”
There seems to be some reluctance to use Bitcoin among traditional companies, at least as an investment vehicle.
During a conference call with investors, General Motors CEO Mary Barra said her company has no plans to invest in Bitcoin but will continue to “monitor and evaluate” the potential use of digital currencies.
“If there is strong customer demand going forward, nothing will stop us from doing it,” said Barra.