October 21, 2021
The controversial digital currency Bitcoin reached a record high of over $66,000 on Wednesday, signalling an increase in value of 131% so far this year, and 50% during October alone, from just under $44,000 at the end of September. The milestone is the latest good news for cryptocurrency enthusiasts, as financial institutions and regulators are showing increasing signs of accepting cryptocurrencies like Bitcoin as a permanent feature of the financial landscape.
Hailed as a new dawn in financial transactions by many, but derided as a volatile and risky fad by their detractors, cryptocurrencies have undoubtedly become big business; the total global value of all the many digital currencies on offer has reached $2.5 trillion, and there are over 200 million users. And this change has come very quickly. It was only 13 years ago, in 2008, when a paper was released entitled “Bitcoin: A Peer-to-Peer Electronic Cash System”, under the name Satoshi Nakamoto, sparking initial interest in the phenomenon. Although it hit $66,000 this week, Bitcoin was worth just $635 per coin five years ago.
The current surge was caused by arguably one of the surest signs yet from mainstream financial market actors that cryptocurrencies are gaining traction, as the US Securities and Exchange Commission cleared an exchange-traded fund (ETF) from ProShares, the so-called ProShares Bitcoin Strategy ETF (trading as BITO), linked to futures transactions for the cryptocurrency. Launched on Tuesday morning, the fund became the second-most heavily traded fund on record, with more than 24 million shares changing hands, according to Bloomberg.
Crypto supporters argue that this is more evidence that they are becoming accepted by the financial establishment, with hedge funds, large banks, and traditional investment houses increasingly opening their minds and their services to Bitcoin. Twitter and PayPal both accept cryptocurrency transactions, and El Salvador earlier this year became the first country to adopt Bitcoin as its national currency. Proponents argue that, long-term, cryptocurrencies will prove safer than fiat currencies as a store of wealth by moving independently of the economy, and may even replace national currencies entirely by removing the need for state middlemen.
Not everyone is convinced. Chinese authorities banned Bitcoin transactions completely last month, and many financial analysts warn investors about cryptocurrencies’ persistent volatility, the lack of regulation of the markets, and the complete absence of investor protection. Underlining these concerns, the price of Bitcoin was under $30,000 as recently as June this year, amid investor nerves about China’s impending crackdown. Bitcoin has also come under fire for the vast energy required to power the computer processes that allow coins to be “mined”, using blockchain technology.
Those worries aside, it seems increasingly unlikely that cryptocurrency is indeed “just a fad”. Securities regulators are beginning to keep closer tabs on the trade, as it moves ever closer to the mainstream. Bank of New York Mellon Corp., Goldman Sachs Group Inc., Morgan Stanley, and Soros Fund Management LLC are just a few of the Wall Street big names offering cryptocurrency services. Once written off as digital dreamers, early advocates of cryptocurrency have now seen their project grow too big for mainstream finance to ignore.
