What's going on with the price of bitcoin?
The value of a single bitcoin has grown by 25,481 percent over the past decade. File photo.
Photo:
AFP
Bitcoin is again near record highs, and there are predictions its value could further increase.
Last week, the cryptocurrency reached a peak of NZ$189,367 before dropping back a little into the start of this week.
Bitcoin's total market capitalisation is now about US$2.15 trillion.
Over the past 10 years, the price of a single bitcoin has lifted from about US$430 to US$110,000 - an increase of 25,481 percent.
A number of factors are credited with the increase including more institutions investing in Bitcoin exchange-traded funds, increasing demand for digital assets and regulations become increasingly supportive, particularly in the United States where President Donald Trump has vocally leant support to cryptocurrencies.
Rupert Carlyon, who offers a cryptocurrency fund through Koura KiwiSaver, said bitcoin was still a small asset class.
"About 70 percent to 80 percent is tied up with long-term holders... so when you put it together, if you've only got $400 billion or $500b of tradable bitcoin, it doesn't require a huge change in buyer behaviour for prices to start spiking."
He said a recent trip to the US showed him how much nervousness there was about the US dollar.
"Everyone talks about the nervousness around the dollar and the deficits and what it means for inflation... that's one of the biggest shocks I had in terms of the investment conversations... it's no longer a fringe conversation around deficits leading to hyperinflation and currency devaluation."
He said central banks around the world were also looking at diversifying away from US dollar assets, which h was one of the reasons the price of gold had increased significantly.
"There's only so much gold that people can hold and then there is a very high holding cost so it's not an easy asset to own.
"I think people are increasingly thinking 'at what point do we start looking at bitcoin and digital assets as an alternative?"
He said bitcoin was still "trading on a promise" of what could be to come. "We haven't actually seen the delivery. If you think about what might make this actually really happen, we haven't seen a huge amount of detail around what happens with Trump and his promises around crypto. You still haven't seen the central banks go properly into bitcoin.
"Some of it's priced in, there's no question, but ... the reality will create a much more violent move than the potential, which is the world we're trading in at the moment."
He said an investment in bitcoin would have outperformed by several times an investment in high-performing stock like Nvidia.
"It is interesting though - both are basically bets on a new future. The current market cap for Nvidia is $3.2 trillion where as Bitcoin has a market cap of $2.2 trillion.
The reason for greater return on Bitcoin is more about where it started. In 2015 it was still very fringe and not really seen as something that would move into the mainstream, whereas Nvidia was still a great business back in 2015."
Sharesies investment lead Gus Watson said Sharesies investors were growing their invsetments in crypto exchange-traded funds.
"As of today, there is over $60 million invested in these via the platform. To help diversify their portfolios through crypto, Sharesies investors are predominantly using funds tracking the price of bitcoin. About three quarters of these crypto holdings are via US-listed ETFs, with the remainder held via the NZX-listed Smart Bitcoin ETF."
University of Auckland associate professor Alex Sims agreed there was potential for further bitcoin growth.
People could hold it without relying on a third party, she said, no one needed "permission" to withdraw it and use it in the way they would if they were dealing with a bank that had to meet anti-money laundering requirements.
"[There are] lots of reports of people being questions about why they want to withdraw their money plus instances of bank accounts of 'dissidents' being frozen including in New Zealand. Third, the amount of Bitcoin that will be issued is known. Again contrast that with quantitative easing in fiat."
She said it was not guaranteed, though, that bitcoin would continue to have any value, let alone increase in value. "It's not as safe as gold in terms of a store of value and is a risky asset."
James Quinn-Kumar, director of community engagement at Binance, said bitcoin had come a long way in terms of trust, accessibility and maturity.
On 22 May 2010, 10,000 BTC was traded for two pizzas - worth just USD$41 at the time. Today, that same amount of Bitcoin would be worth over USD$1 billion.
"It's hard to think of a better illustration of Bitcoin's rise," he said. "In just 15 years, we've gone from pizza purchases to portfolio allocations. That's a signal of profound market evolution."
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