Bitcoin Prices Surge to Record Highs

Bitcoin Tops $23,000 for the First Time

Bitcoin surged more than 9% on Thursday to surpass $23,000—a new record. The world’s largest digital currency is up 220% this year, and analysts expect more growth in the future. That said, Bitcoin has a history of rallying and then plunging.

Three years ago Bitcoin saw a huge price spike but then prices dropped significantly. Critics believe the cryptocurrency might be headed in that same direction now. Advocates, however, point out that Bitcoin is becoming more popular for long-term investors like asset managers and family offices. This means that the cryptocurrency is in a different position than it was three years ago.

As Bitcoin has surged this year, BBG Galaxy Crypto (BGCI), a wider crypto index, has more than tripled. Cryptocurrency-related stocks in South Korea, Japan, and China have also soared this year.

Other Reasons Why Crypto Is Climbing

Traditional financial leaders have invested heavily in cryptocurrencies in recent weeks, lending potential staying power to Bitcoin and its competitors. Earlier in December, MassMutual, one of the world’s oldest insurance companies, announced it would purchase $100 million worth of Bitcoin. The purchase represents less than 0.05% of MassMutual’s general investment account, but it remains a sign of growing faith in the cryptocurrency.

Across the pond, London’s Standard Chartered (SNTDF) investment bank partnered with Chicago’s Northern Trust (NTRS) to create an institutional-grade cryptocurrency-storage solution. The platform will help institutions invest in cryptocurrency assets starting in 2021. Major banks in Singapore, Spain, and Zurich also released plans to enable cryptocurrency investments by wealthy individuals and institutions.

Determining Bitcoin’s Fair Value

Wall Street disagrees about the fair value for cryptocurrencies like Bitcoin. On one hand advocates like Guggenheim Partners CIO Scott Minerd say Bitcoin’s value should eventually climb to $400,000 per coin. Minerd said his valuation was based on scarcity, and the Fed’s “rampant money printing.” In his opinion, “bitcoin actually has a lot of the attributes of gold.”

Meanwhile skeptics say Bitcoin is currently overvalued by more than 50%. An analysis by Claude Erb, a former Commodities Portfolio Manager at TCW Group, titled, “Bitcoin Is Exactly Like Gold Except When It Isn’t” says that when modeled on a social-network valuation model, Bitcoin should be priced around $12,315. According to that model, Bitcoin may not reach a fair value of $74,000 for 120 years. Advocates and skeptics have strong opinions about bitcoin and other cryptocurrencies. Both sides will be eager to see if the digital currency’s rally continues.

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