Virtual gold? The rise of Bitcoin ignites a new debate amid a pandemic

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LONDON – Bitcoin’s rally above US $ 15,000 has reignited debate over whether the cryptocurrency is so-called digital gold or a dangerously risky bet as investors grapple with the coronavirus pandemic.

The world’s most popular virtual drive gained over 30% in value in nearly three weeks through Friday, bringing it close to its December 2017 peak when it hit nearly $ 20,000.

After a rollercoaster ride in the markets since then, it began its latest meteoric rise on October 21, after US online payment provider PayPal announced it would allow account holders to use cryptocurrency.

“It is validation of a market that was still relatively uncertain a few years ago,” said Simon Polrot, president of the Paris-based crypto-asset association ADAN.

Bitcoin was created in 2008 by the pseudonym Satoshi Nakamoto and marketed as an alternative to traditional currencies.

Unregulated by any central bank, it has been sold as an attractive option for investors with an appetite for the exotic, although criminals have seen its hidden appeal too.

However, after bitcoin first surpassed US $ 1,000 in 2013, it has attracted more and more attention from financial institutions.

According to Polrot, the most recent arrival of major players in the virtual market, such as PayPal and Mastercard, are “very important signals” that are consolidating this trend.

MILLENNIAL APPEAL

PayPal said it will allow users to buy and sell using bitcoin and other cryptocurrencies such as Ethereum and Litecoin.

“The migration to digital payments and digital representations of value continues to accelerate, driven by the Covid-19 pandemic and the growing interest in digital currencies by central banks and consumers,” the company said.

The US Federal Reserve and the European Central Bank are holding consultations on the possible launch of their own virtual currencies, while China’s central bank began experimenting with digital payments in four cities in April.

Investment banking giant JPMorgan Chase has joined industry players in growing optimism around bitcoin.

After PayPal’s announcement, the bank’s analysts compared the cryptocurrency to gold.

“Bitcoin could compete more intensely with gold as an ‘alternative’ currency in the coming years as millennials become a more important component of the investor universe over time,” they said.

They noted that the total cryptocurrency market cap is 10 times lower than that of gold, with some speculators that could consistently close that gap.

This view represents a significant shift as JPMorgan boss Jamie Dimon described bitcoin as a “fraud” two years ago.

‘CATASTROPHE’

On Thursday, its price jumped nearly 9% and gold rose 2.45% as the US election impacted the market. The increases have sparked new comparisons between the two assets.

“Crypto could be a form of safe haven in an environment where trust in fiat money is somewhat undermined,” Polrot said.

As with gold, bitcoin could benefit as central banks deliver trillions of stimulus to counter the devastating effects of the COVID-19 pandemic, potentially diluting the value of their currencies.

Both gold and bitcoin are “mined” – virtually, by computer users, in the case of cryptocurrency – and have a limited supply, unlike cash printed in unlimited quantities by central banks.

Charles Morris, whose ByteTree company specializes in cryptocurrencies, argues that bitcoin is “very much a growth asset, behaving like a tech stock.”

He noted that, like gold, some people in Iran, Venezuela, and Turkey have used cryptocurrency in recent years to protect their savings from uncontrolled inflation.

However, others point to the highly volatile and speculative nature of cryptocurrencies.

“There is no room for bitcoin in a serious forex wallet,” said a London trader who asked to remain anonymous, noting that the unit had lost a quarter of its value in March alone before resuming its rally more recently. .

“It would be a catastrophe for a forex trader – we use gold to balance our portfolio.”

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