Bitcoin has bounced back above $10,000 (£7,731), fuelled by investors seeking a safe haven amid fears over the economic impact of the coronavirus.
On Sunday, bitcoin rose above $10,000 for the first time since September and by Wednesday was trading at $10,335 on the Luxembourg-based bitcoin and cryptocurrency exchange Bitstamp. It marks a significant shift in fortunes for the 10-year-old cryptocurrency, which hit a low of $3,196 in December 2018.
Bitcoin and other cryptocurrencies have joined gold as a safe-haven asset at times of economic or political uncertainty.
Trading in the cryptocurrency has been highly volatile and even after its latest bull run it remains well below its all-time high in late 2017, which was just short of $20,000.
While the coronavirus, which has been officially named Covid-19, is considered a factor in its latest surge, the main driver in the short-term is mostly attributed to the upcoming bitcoin “halving event” in May. This will result in the number of bitcoins available to so-called “miners” being cut by half. The last time the supply was cut in 2016, bitcoin prices doubled and then surged to a record high the following year.
“If bitcoin keeps going, this could well rekindle the debates as to whether bitcoin is money,” said Russ Mould, the investment director at AJ Bell. “That in turn fuels discussion over whether it is worthy of consideration as investment as part of a balanced portfolio.”
The potential for cryptocurrencies to enter the mainstream as a widely accepted alternative to traditional payment methods, such as credit cards, has been hindered by its use for criminal purposes.
There is also a lack of official regulation and last year the Financial Conduct Authority proposed a ban on financial instruments linked to cryptocurrencies such as bitcoin, warning there could be huge losses for consumers unlikely to understand their risks or value.
“The case for considering bitcoin to be money is that cryptocurrencies are money as they facilitate transactions over time and distance and represent a trusted medium (at least by some), just as cowrie shells, cows, metal, slips of paper and plastic cards have since time immemorial,” Mould said. “[But] unless bitcoin can be used to buy groceries or pay taxes, they have limited use and thus value, no matter how many you have, goes the argument.”