Since its invention in 2008, Bitcoin has seen its value both surge and freefall. However, its latest peak is the cryptocurrency’s most impressive increase in value yet. Its current price of around $47,000 (at time of writing) is a rise of around 67% year-on-year, and it briefly hit $47,513.57, an all-time record for Bitcoin’s value. One figure who has become closely linked to this story is Tesla CEO Elon Musk.
Until recently the richest man alive, on January 8th Musk replied to a tweet from Ben Mezrich, author of ‘Bitcoin Billionaires’. Mezrich tweeted: “I’ll tell you one thing, I’m never turning down getting paid in bitcoin again,” to which Musk responded: “Me neither.”
While many of the billionaire’s tweets in the past have been flippant, it looks like Musk is putting his money where his mouth is. Tesla has just announced an aggregate investment of $1.5 billion into Bitcoin, which is one of the factors that caused the cryptocurrency’s recent record-high price.
Furthermore, Musk seems to be of the opinion that if he manages to colonize Mars - the stated aim of another of his companies, SpaceX - the Martian economy could be based on crypto. He hasn’t yet stated whether that would be Bitcoin or another cryptocurrency.
With one of the world's richest men investing heavily in Bitcoin, expressing a desire to be paid in it and even suggesting it could be the future currency on another planet, the cryptocurrency could be entering a new stage of mainstream acceptance. Signs are certainly pointing towards Bitcoin breaking into the more traditional financial world in the near future.
The acceptance of Bitcoin
It’s important to remember at this stage that Musk’s comments and actions can have huge impacts on the Bitcoin ecosystem. For example, towards the end of January the billionaire changed his Twitter bio to include “#bitcoin”, causing the price of the cryptocurrency to jump up by around 20%. This spike was short-lived however, and the gains disappeared within a few hours.
One of the causes of Bitcoin’s recent record high was the announcement that Tesla was investing so much into it. However, there’s good reason to believe this peak will be much less fragile as it’s based on a solid investment rather than a tweet; it could signal the beginning of Bitcoin’s acceptance into the mainstream.
This is certainly Musk’s opinion. He recently told a Clubhouse chat room: “I am a supporter of Bitcoin. I am late to the party but a supporter. I think Bitcoin is on the verge of getting broad acceptance by conventional finance people.”
He’s certainly not the only one to think this, and Bitcoin is already breaking into the financial world in some places. For example, in October last year PayPal announced it would be allowing US customers to buy, hold and sell cryptocurrencies from their PayPal accounts. This certainly seems like a sign of mainstream acceptance.
What is the future of Bitcoin?
While a lot of this seems extremely positive for the cryptocurrency and its holders, there are still a number of obstacles in its way. One of the biggest is that it’ll never hold its own next to traditional currencies until it’s widely accepted as a medium of exchange, something that’s currently only the case in certain obscure areas of the internet.
However, there are signs this is changing, especially in the developing world. Countries from Brazil to Cuba to Nigeria are turning to Bitcoin for international transactions as they find it to be safer than their local currencies due to unstable banks and as dollars become harder for them to access. That said, traditional banking seems to be fighting back, with Nigeria’s central bank recently banning cryptocurrency transactions.
Financial experts also warn that aspects of Bitcoin make it unsuitable as a traditional currency. Sharmin Mossavar-Rahmani, head of consumer and investment management at Goldman Sachs, recently said of Bitcoin: "Something with a long-term volatility of 80% can't be considered a medium of exchange.” However, when it comes to cryptocurrency the most important thing to remember is that nothing is set in stone, and it would be a mistake to write Bitcoin off.
Ruchir Sharma, Morgan Stanley Investment Management’s chief global strategist, wrote in the Financial Times: “Do not assume that your traditional currencies are the only stores of value, or mediums of exchange, that people will ever trust. Tech-savvy people are not likely to stop looking for alternatives, until they find or invent one.” Bitcoin could well be exactly that alternative.