The Bitcoin buying frenzy, trigged by Tesla’s announcement of $1.5 billion investment into the cryptocurrency and plans to accept it as a mode of payment, sent its price soaring to past $47,000.
Bitcoin surged 22 per cent to $47,853 at 11.29am UAE time on Tuesday, as investors piled into the digital currency after Tesla’s disclosure on Monday. The cryptocurrency is up 370 per cent from a year ago.
"It seems like the bull rally is in full swing now, and nothing is going to stop the Bitcoin price from touching the $50K price level," Naeem Aslam, chief market analyst at brokerage Avatrade, said in a note to investors.
Tesla will soon start accepting Bitcoin as payment it said in a statement to the US Securities and Exchange Commission on Monday.
"We expect to begin accepting Bitcoin as a form of payment for our products in the near future, subject to applicable laws and initially on a limited basis, which we may or may not liquidate upon receipt."
The announcement was the latest endorsement for Bitcoin. Tesla’s chief executive, Elon Musk, who is the world’s richest man, has been touting digital assets in his recent tweets. He is not the world’s first billionaire to support investments in crypto assets.
"The fact that Tesla accepts Bitcoin as a medium of exchange is a futuristic step, and perfectly fits the vision of its founder," Ipek Ozkardeskaya, a senior analyst at Swissquote Bank, said.
However, concentrated holdings and thin market volumes have driven volatility in cryptocurrencies, which is one of the greatest barriers to their adoption in real world transactions. Bitcoin has seen a meteoric rise in the past few months, rising on January 8 this year to almost $42,000 and then slumping below $33,000 in a matter of days.
Crypto assets have been under intense regulatory scrutiny around the globe following bouts of volatility. Some of the regulators consider them as a threat to monetary stability and view as facilitators of money laundering and criminal activity.
In January, the UK’s Financial Conduct Authority, which described cryptocurrencies as "highly speculative", said "if consumers invest in these types of product, they should be prepared to lose all their money".
Ms Ozkardeskaya of Swissquote Bank said Tesla investors have not reacted to Bitcoin as means of transaction news "with the same enthusiasm" as Bitcoin investors have.
"If Bitcoin’s price was almost multiplied by five over the past year, it doesn’t mean that it won’t come down crashing," Ms Ozkardeskaya said. "The high volatility in Bitcoin’s value will, therefore, inevitably inject a certain volatility in Tesla’s revenue, and decrease the predictability of the company’s performance."
Shares of Tesla, which joined the S&P 500 index in December, closed 1.13 per cent higher at $863.42 on Monday. The stock is up about 460 per cent from a year ago.
