Bitcoin Bull Run

In times of economic uncertainty, people often pour cash into gold, government bonds, and extra rolls of toilet paper.

Increasingly, prominent investors are adding bitcoin to that list.

An impressive rally has the flagship cryptocurrency flirting with record levels after climbing back above $18,000 last week.

Crypto Climb

Bitcoin has soared over 150% this year, including a 50% run-up in the past month alone. The digital currency traded as high as $18,965 Friday, just 4% under its all-time high set in December 2017.

Let’s dig into what’s driving the surge:

Good As Gold: Amidst record stimulus programs and pledges from central banks to boost inflation, investors are leaning into bitcoin as a “safe-haven” from sovereign currencies. Billionaire money manager Stanley Druckenmiller announced a position this month, saying “if the gold bet works, the bitcoin bet will probably work better.”

The Robinhood Effect: Growing retail demand led Fidelity to set up a new unit for digital asset investing, and Paypal launched a service this month allowing users to buy, sell, and pay with crypto. Square’s Cash App saw customers buy $1.6 billion of bitcoin in the 3rd quarter, up from $555 million a year before.

Laying Down The Law: In prior years, bitcoin was off-limits for many investors because of an uncertain regulatory framework. But both the IRS and SEC established cryptocurrency regulations in recent years, and major exchanges like CME and ICE now offer crypto trading services.

Fellow billionaire hedge funder Paul Tudor Jones also recently tossed 1-2% of his assets into bitcoin. Antoni Trenchev of cryptocurrency lender Nexo said all the big money pouring in is “similar to the gold bull market in the 1970s.”

Strap In For Volatility

For every bitcoin bull, there is an even louder bear.

Lior Messika of venture capital firm Eden Block said bitcoin is still “plagued with volatility.”

In January 2018, the digital coin lost around half of its value after a huge run. This March it fell as low as $3,867, a drop of more than 60% from the start of the year.

Adding to the turbulence, the bitcoin market remains relatively diminutive. In its recent monthly blockchain letter, Pantera Capital estimated that trading volumes from just Paypal and Square’s Cash App exceed the amount of new bitcoin created daily.

Coin Crunch:

Pantera’s letter went on to say if “growth persists, Paypal alone would be buying more than all of the newly-issued bitcoin within weeks.”