Posted on Nov 16, 2020 at 3:01 p.m.
In recent days, PayPal has allowed all of its American users to buy, sell and store certain cryptocurrencies such as bitcoin and ether in their wallets. From the start of 2021, this service must be extended to the 345 million PayPal users worldwide, and allow payment in crypto to the 26 million merchants in the network with one click.
An announcement that boosted the value of bitcoin, in the wake of a 2020 year on the hats of wheels. The most famous digital asset is trading on November 16 above $ 16,000 per unit, up more than 120% since January 1. Bitcoin is approaching the record levels it reached before its price collapsed in January 2018.
Safe investment ?
After PayPal’s announcement, analysts at the world’s largest investment bank, JPMorgan, are comparing bitcoin to gold very seriously. “Bitcoin could compete with gold as an alternative currency in the coming years, as a new generation of investors takes an ever larger share in the market,” they say in a note. In 2017, JPMorgan CEO Jamie Dimon still called cryptocurrency a “scam”. A position still shared by part of traditional finance.
Popular with index funds
In comparison with gold, it is the safe haven potential that is fueling speculation about the future of bitcoin. Investors have traditionally turned to anti-crisis assets like gold to protect their portfolio. And the success of bitcoin on the front of ETFs, the famous “trackers” or index funds, in the United States, which surpassed those backed by the yellow metal in October, pushes JP Morgan in particular to believe that “certain investors such as managers of very large fortune, who previously placed their funds in ETFs, may be turning to bitcoin as an alternative to gold ”.
If the legitimacy of bitcoin is still denied by many financial players, this change in position is indicative of the breakthrough of cryptocurrencies in the portfolios of institutions. The proliferation of authorizations from the American authorities to platforms in particular managed by the International Continent Exchance (ICE), the parent company of the New York Stock Exchange (NYSE) or even supported by the Nasdaq to launch derivatives dedicated to bitcoin, gives credibility to small gradually its use in the international financial order.
Alternative to printing money
Not regulated by a central bank and issued by a non-centralized network, bitcoin could also be an alternative to traditional currencies. Traditional currencies put in difficulty by the trillions of liquidity poured into the world to stimulate the economy in the face of the health crisis. While the number of bitcoin in circulation can never exceed 21 million units.
An organized rarity which makes it possible to bring it even closer to the yellow metal rather than the dollar or the euro for the supporters of “digital gold”. The use of cryptocurrencies observed in countries where inflation has galloped such as Iran, Venezuela, Turkey or Nigeria is part of this optimistic vision with regard to bitcoin.
But these favorable winds cannot dispel the doubts that weigh on the credibility of the cryptocurrency. Bitcoin has shown itself to be very vulnerable to the collapse of financial markets during the contamination of the world economy by Covid-19.
At the height of the stock market storm, its value plunged nearly 40% in a matter of days, falling below $ 5,000. Physical gold conceded just over 10% over the same period.
A volatility that casts doubt on bitcoin another payment giant: Mastercard. Ajay Banga, the CEO of the American banking juggernaut, recently felt that he is not an “ideal instrument for financial inclusion” because of this “high volatility”. But for Mastercard, which has the ambition to bank 1 billion people around the world, interest in this technology remains very strong.
Central bank digital currency
According to Ajay Banga, only digital currencies driven by central banks can be useful to the international financial system. A bet that many governments have launched, like China and Japan or the initiative of the Bank for International Settlements which has formed a research group with in particular the European Central Bank.
What to put into perspective the potential of bitcoin, at least in the short term. The return of cryptocurrency to new highs, at nearly $ 16,000, therefore calls for caution and underlines its high volatility. As a reminder, bitcoin has already experienced the bursting of a speculative bubble in early 2018 which ejected many traditional players in the sector and fueled mistrust of “digital gold”.