[2021 PREVIEW] Betting on bitcoin is back, and this time it might be less of a gamble
Along with the bullish rally of the stock market, a more unusual asset also returned to the spotlight this year and saw a boost from coronavirus-induced liquidity: Bitcoin.
The price per bitcoin reached over 30 million won ($27,600) for the first time last month, according to local cryptocurrency exchange Upbit, and is continuing to rise as cryptocurrency is increasingly being seen as an attractive alternative investment to gold.
The surge came roughly a month after the price per bitcoin passed 20 million won for the first time in roughly three years in November.
"The depreciation of currency value due to the abundant liquidity unleashed by global governments to fight the coronavirus pandemic, the hike in interest in digital assets and entry of institutional investors, including PayPal and Fidelity, into the market have largely pushed up bitcoin prices," said Han Dae-hoon, an analyst from SK Securities.
PayPal supporting cryptocurrency transactions was a major trigger that boosted interest in bitcoin after the service launched in October.
Though only available in the United States for now, PayPal users can buy, hold and sell select cryptocurrencies on its platform. From early this year, PayPal said its customers will be able to use their cryptocurrency holdings as a funding source to pay at some 26 million affiliated stores.
Considering the payment service has some 350 million users globally, cryptocurrencies including bitcoin could better present themselves as an everyday transaction medium once the service is offered to all of its global users.
"The migration toward digital payments and digital representations of value continues to accelerate, driven by the Covid-19 pandemic and the increased interest in digital currencies from central banks and consumers," PayPal said in release while launching its service.
Big-name investors in Wall Street have also started including bitcoin in their investment portfolio to mitigate the risk of inflation.
Renaissance Technologies' flagship hedge fund Medallion dipped into the world of cryptocurrency as it announced in a filing last year that the fund has been given the nod to trade bitcoin futures on the Chicago Mercantile Exchange.
Macro investor Paul Tudor Jones also said last year he is buying bitcoin to hedge against potential inflation.
In 2017, when there was a global cryptocurrency boom, the market was highly volatile as individual investors chased bitcoin for fear of missing out. At the time, there were stories everyday about people who had made their fortune through cryptocurrency investments, but also those that had lost big as bitcoin prices soon plunged.
"What's different compared to [the bitcoin surge in 2017] is lower volatility in the market thanks to the entry of institutional investors," Han added. "As an increasing number of large institutional investors are preparing to enter the [bitcoin] market this year, it could be an even better year for bitcoin."
There are still cryptocurrency skeptics who are wary of the way prices have skyrocketed and plunged in the past.
"There are still risks involved with bitcoin ... I think there is still a chance of its price plummeting," said Lee Jeong-hwan, an economics and finance professor at Hanyang University. "Mainstream adoption of bitcoin has been difficult due to their limited utility as a means of exchange. If it is recognized more as a payment medium it could, in the future, become a meaningful alternative to dollars."
BY KIM JEE-HEE [firstname.lastname@example.org]
More in Finance
Financial system weak links stress-tested for dollar flood
Auto and tech stocks buoy bullish Kospi
Gov't to monitor market volatility as bond yield spread widens
Seoul stocks up 2 percent on expectations of improved earnings
Short-selling news just a big misunderstanding, FSC says