Bitcoin climbs for the 1st time over $50K US
Rally driven by signs of acceptance among mainstream investors
Bitcoin's seemingly exponential rise continued Tuesday, with the cost of a single digital currency unit rising for the first time above $50,000 US.
Only one year ago, the same bitcoin would have cost you $10,000 US. In the last three months alone, the price has been up by almost 200 percent.
As more businesses suggest that the volatile digital currency will eventually gain widespread acceptance as a means of payment, Bitcoin is rallying. It was regarded as a commodity, like gold, by the vast majority of those who purchased bitcoin, with few places accepting it in exchange for products or services.
Because of bitcoin's uncertainty and its use by parties who want to escape the conventional banking system for a multitude of purposes, businesses have been leery.
However, last Monday, the electric car maker Tesla sent a tremor through the digital currency markets, claiming that as part of a new investment plan, it was buying $1.5 billion US in bitcoin and that it would soon accept bitcoin in return for its vehicles.
Then Charlottesville, Va.'s Blue Ridge Bank announced it would become the first commercial bank to provide its branches with access to bitcoin. The regional bank said Wednesday that bitcoin can be purchased and redeemed by cardholders at 19 of its ATMs. A day later, BNY Mellon, the oldest bank in the United States, followed, announcing it would provide digital currencies in the services it offers to customers.
'Not going to occur immediately'
Richard Lyons, a finance professor at the University of California at Berkeley, says it's unavoidable, although others expect a gradual progression towards widespread use of bitcoins as currency. Lyons expects that over the next five years, bitcoin and other digital currencies "will become transactional currencies increasingly over the next five years. It's not going to happen overnight," he 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." Lee Reiners, who teaches fintech and cryptocurrency courses at Duke University School of Law, said.
But because of its uncertainty, Reiners claims businesses would remain unwilling to embrace bitcoin for payment.
"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?" Reiners said in an email.
Investors would also have to deal with the uncertainty. Since its debut on the futures market in 2017, the price of bitcoin has soared and dipped. Such fluctuations, analysts warn, could wreak havoc on the bottom line of a business and deter investors.
Tesla warnings against volatility
Assuming that Tesla bought bitcoin in January at the volume weighted average price of $34,445 US, the company with its investment is sitting on a profits of about 38 percent. But Tesla cautioned in the regulatory announcement unveiling the investment about bitcoin's volatility, its dependency on technology for usage, and the absence of a centralized issuer, such as a government.
"While we intend to take all reasonable measures to secure any digital assets, if such threats are realized 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," said Tesla in the filing.
In accounting for its bitcoin investment on its books, Tesla will have to be very cautious and thorough,"Tesla is going to have to be very careful and comprehensive in accounting for its bitcoin investment on its books," "Like any other financial asset other than actual cash, it might fluctuate."
Demand on Canadian ETFs
Canadian regulators are getting the go-ahead on Bitcoin-based exchange traded funds, paving a route for a fund structure that investment managers believe is unique in the industry.
Toronto-based Intent Investments says that after the fund consulted with regulators to ensure that it could build something that meets the rules for both the ETF sector and the digital asset industry, its bitcoin ETF will possibly begin trading this week under the symbol 'BTCC.'
An Ontario Securities Commission spokesman says that last Thursday, the regulator finished reviewing the final plan of Intent Investments to sell securities and gave the fund a receipt that makes it a reporting issuer in Ontario.
After the milestone was announced by Intent Investments, another Canadian fund, 3iQ, said it had also obtained preliminary receipts for a bitcoin ETF in all the provinces and territories of Canada except Quebec.
Both funds claim to be "physical" bitcoin ETFs, setting them apart from some of the other crypto-currency investments out there, such as the Chicago Mercantile Exchange's bitcoin futures.
'Physical,' not derivative
Greg Taylor, Chief Investment Officer of Purpose Investments, says that the fund varies from a derivative or futures contract, as Purpose Investments will purchase bitcoin any time anyone puts money into the ETF.
Taylor says Purpose Investments would also use a mechanism called "cold storage." to store the bitcoin codes themselves, not on the internet. OSC has described cold storage as "a computer with no access to a network" that is less prone to hacking.
The end result of these bitcoin ETFs is that investors can keep real bitcoin in their portfolios but can buy and sell it similarly to buying or selling a stock, Aim Investments says.
"The risk is for traditional investors that you have to open up a trading account to buy bitcoin and you're in self-custody — meaning you're going to get the code and password for that coin. And you're responsible for doing that," Taylor said. "With the ETF structure, it's going to be easier as we'll do that with our custodian."
CIBC Mellon acts as a fund administrator for the bitcoin ETF of Intent Investments, as the organization is looking for ways to satisfy increasing cryptocurrency demand.
Ronald Landry, who operates CIBC Mellon's Canadian ETF services, says it is operating in Canada to get more crypto-currency services up and running.
A physical bitcoin ETF is the natural progression from its other investment instruments, which include a publicly traded bitcoin investment fund and a cryptocurrency-based Ether fund, 3iQ chief executive Fred Pye says.