The Bloomberg Galaxy Crypto Index, which includes Bitcoin, Ether and three other digital coins, has rallied about 50 per cent this week, the most since December 2017. Bitcoin jumped to a new record on Friday, reaching as high as $41,092.
Cryptocurrencies are becoming emblematic both of the exuberance in financial markets as well as of the concern that the pace of gains is unsustainable. Believers in Bitcoin see it as a maturing asset that provides a hedge against dollar weakness and inflation risk. Others worry that the rally is untethered from reason and fueled by vast swathes of fiscal and monetary stimulus.
Commentators have pointed to a range of potential sources of demand for cryptocurrencies, ranging from rampant speculation by stuck-at-home day traders to increased purchases by institutional and corporate investors.
The potential for “upside of historic proportions” suggests investors should keep buying Bitcoin and Ether, according to Rich Ross, a technical strategist at Evercore ISI.
But in a note Wednesday he also described the outlook as “tulip-like,” a reference to the 17th century mania for tulip bulbs that led to one of history’s most infamous market bubbles and crashes.
The total market value of cryptocurrencies surpassed $1 trillion for the first time this week after a fivefold climb in the past year, data from tracker CoinGecko shows. CoinGecko’s figures cover more than 6,000 coins.