The Bitcoin virtual currency reached a milestone $1 trillion (£710m) market capitalisation during its latest rally on Friday, as its detractors continued to warn of the dangers posed by its volatility.
The cryptocurrency surged 13 percent last week to over $55,000 on Friday, posting gains of 66 percent so far this month.
The rise valued of all Bitcoins at over $1tn, while all cryptocurrencies combined are worth about $1.7tn.
The US’ oldest bank, Bank of New York Mellon, said earlier this month it would hold, transfer and issue Bitcoin and other cryptocurrencies on behalf of its asset-management clients, while Tesla said it had invested $1.5bn in the virtual asset and would accept it as a form of payment.
Bitcoin’s proponents are currently arguing that it can function as a “digital gold” that can hedge against the risk of inflation caused by massive central bank stimulus packages in response to the Covid-19 pandemic.
Deutsche Bank analyst Jim Reid said in a research note that Bitcoin was “ironically” becoming a “credible asset class” in some investors’ eyes due to its recent rises in market value and buy-in from institutional investors.
The $1tn market capitalisation values Bitcoin at more than Tesla, which has a market cap of around $700bn, but less than Apple, which is valued at more than $2tn.
Some industry watchers said another milestone would be for Bitcoin to surpass Alphabet’s $1.4tn market valuation.
Bitcoin’s proponents marked the milestone on social media, with Gemini’s Cameron Winklevoss saying on Twitter that “Bitcoin is eating gold alive”.
But many organisations continue to warn of the hazards posed by Bitcoin’s notorious volatility, which saw it lose nearly three-quarters of its value over a period of several months in 2018.
JP Morgan analysts in a research note called Bitcoin an “economic side show”, comparing it unfavourably to recent innovation in financial technology and the growth of digital platforms into credit and payments, which they called “the real financial transformational storyof the Covid-19 era”.
As cryptocurrency ownership becomes more mainstream, the assets actually become a poorer hedge against inflation, the firm said.
That’s because wider ownership increases their correlation with cyclical assets, which rise and fall in line with broader economic changes, it said, adding that Bitcoin is currently trading at well above estimates of its fair value.
“Crypto assets continue to rank as the poorest hedge for major drawdowns in equities, with questionable diversification benefits at prices so far above production costs, while correlations with cyclical assets are rising as crypto ownership is mainstreamed,” JP Morgan said.