With Bitcoin’s supply capped at 21 million, some see it as a hedge against the risk of inflation as governments and central banks turn on the stimulus taps in response to the COVID-19 pandemic. Some also view it as a safe-haven play during the COVID-19 pandemic, akin to gold.
“Some of it is reflecting the fear of a weaker dollar,” Bank of Singapore currency analyst Moh Siong Sim said of the most recent rally.
“It seems like people are preferring Bitcoin as an expression of concern over currency debasement, relative to gold.”
Bitcoin’s advance also reflects increasing expectations it will become a mainstream payment method, with PayPal opening its network to cryptocurrencies.
The potential for quick gains has also attracted demand from larger US investors, as well as from traders who normally stick to equities.
“The rally gained even more momentum as insatiable investors continued trading from home” during the New Year holidays, said Dave Chapman, executive director at Hong Kong-based digital asset company BC Group.
Institutional investors see the potential for greater risk-adjusted returns compared with traditional investments, he said.