Bitcoin exceeds $50,000 for the first time

The digital currency is gaining acceptance as a means of payment by companies, including Tesla, and US banks

Bitcoin Trading Machine is pictured in a bodega in the Manhattan borough of New York City, February 9, 2021. Reuters

The seemingly unstoppable rise of Bitcoin continued Tuesday with the cost of a single unit of the digital currency rising above $50,000 for the first time.

The same Bitcoin one year ago would have cost $10,000. The price is up almost 200 per cent in the last three months alone.

Bitcoin is rallying as more companies signal the volatile digital currency could eventually gain widespread acceptance as a means of payment. The vast majority of those who have acquired Bitcoin have treated it as a commodity, like gold, with few places accepting it in exchange for goods or services.

Companies have been wary due to Bitcoin’s volatility and its use by parties who want to avoid the traditional banking system for myriad reasons. On Tuesday, the price crossed and recrossed the $50,000 barrier at least a half dozen times before 10am.

Last Monday, however, the electric car company Tesla sent a tremor through the digital currency markets, saying that it was buying $1.5 billion in Bitcoin as part of a new investment strategy, and that it would soon be accepting Bitcoin in exchange for its cars.

Then Blue Ridge Bank of Charlottesville, Virginia, said that it would become the first commercial bank to provide access to Bitcoin at its branches. The regional bank said Wednesday that cardholders could purchase and redeem Bitcoin at 19 of its ATMs.

BNY Mellon, the oldest bank in the US, followed a day later, saying it would include digital currencies in the services it provides to clients. MasterCard said it would start supporting “select crypto currencies” on its network.

While most expect a slow evolution towards widespread usage of bitcoins as currency, Richard Lyons, a finance professor at the University of California at Berkeley, says it is inevitable. Lyons predicts Bitcoin and other digital currencies “will become transactional currencies increasingly over the next five years. It’s not going to happen overnight,” he said.

Lee Reiners, who teaches fintech and cryptocurrency courses at Duke University School of Law, said BNY Mellon’s move makes sense because “there are now numerous high net-worth individuals and investment funds embracing crypto as an asset class to be added to their portfolio.”

But Mr Reiners believes companies will remain hesitant to accept Bitcoin for payment because of its volatility.

“If you were a merchant, why would you accept payment in an asset that could be worth 20 per cent less a day after you receive it?,” Mr Reiners said in an email.

Investors will have to grapple with that volatility as well. The price of Bitcoin has soared and dipped since its debut on the futures market in 2017. A year ago, Bitcoin sold for below $10,000. Those fluctuations, analysts warn, could wreak havoc on a company’s bottom line and deter investors.

Assuming Tesla bought Bitcoin at the volume-weighted average price of $34,445 in January, the company is sitting on a gain of about 38 per cent with its investment. But in the regulatory announcement unveiling the investment, Tesla warned about the volatility of Bitcoin, its reliance on technology for its use and the lack of a centralised issuer, such as a government.

“While we intend to take all reasonable measures to secure any digital assets, if such threats are realised or the measures or controls we create or implement to secure our digital assets fail, it could result in a partial or total misappropriation or loss of our digital assets, and our financial condition and operating results may be harmed,” Tesla said in the filing.

“Tesla is going to have to be very careful and comprehensive in accounting for its Bitcoin investment on its books,” said Anthony Michael Sabino, a professor of law at St John’s University. “Like any other financial asset other than actual cash, it might fluctuate.”

There appears to be some reluctance among traditional companies regarding Bitcoin, at least as an investment vehicle.

During a recent conference call with investors, General Motors chief executive Mary Barra said her company had no plans to invest in Bitcoin, but would continue to “monitor and evaluate” potential use of digital currency.

“If there’s strong customer demand for it in the future, there’s nothing that precludes us from doing that,” Ms Barra said.