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cryptocurrency | IST

Bitcoin holds above $51,000 as El Salvador moves closer to accepting it as legal currency

Bitcoin scaled $50,940 late Friday and was changing hands at $51,775, 4 percent higher, at the time of writing. Bitcoin’s rally comes a day before El Salvador’s plan to make the token a legal currency.

Bitcoin, the world’s largest cryptocurrency, has climbed a three-and-a-half-month high to trade above $50,000 in what seems to be a broader revival from the rout in May. Ether, the number two coin, also supported the rally and hit $4,000 for the first time since May.
 
Bitcoin scaled $50,940 late Friday and was changing hands at $51,775, 4 percent higher, at the time of writing. It had surged to $50,000 on August 23 as well, only to undergo profit booking and retract. This is the highest it has scaled since May when it plunged from an all-time high of $65,000. This week, the coin is up over 8 percent.
 
The crypto market has seen a surge in interest owing to a fresh wave of bullishness after the US jobs growth report was released Friday. The report fueled speculations that the lacklustre jobs data might delay Federal Reserve’s decision to taper bond purchases. Fed has been buying treasuries worth $120 billion a month since the coronavirus outbreak.
 
According to analysts, Fed's easy stance suppress returns in bond markets, investors may flock to cryptocurrencies.
 
Bitcoin’s break above $50,000 comes a day before El Salvador’s plan to make the token a legal currency. Earlier in June, the South American country had approved the law will formally adopt bitcoin as a legal currency on September 7.
 
However, before Tuesday when the law comes into effect, users on social media are discussing plans to buy Bitcoin worth $30 to mark the date. This Reddit and Twitter induced rally echoes previous instances when people had targeted and pumped stocks like GameStop and AMC Entertainment.
 
Meanwhile, El Salvador has begun installing ATMs to allow BTC-USD conversions. The government has also created a fund worth $150 million to back such conversions.
 
Cryptocurrencies have surged this year owing to increased institutional interest and development in areas like decentralised finance (Defi), and non-fungible tokens (NFTs). Further, Twitter’s announcement of allowing Bitcoin tips in its Tip Jar feature has attracted more interest.
Further, reports say Golden Tree, a $45 billion asset manager, has added Bitcoin to its balance sheet. Morgan Stanley and Bill Miller's have bought millions of dollars shares of Grayscale Bitcoin. All this has led to confidence in the market for Bitcoin.
Moreover, digital parking companies in Europe has allowed customers to pay cryptos for parking. And shop.com, an e-commerce platform, has partnered with BitPay to allow customers to pay with cryptocurrencies. Also, Worldline and Bitcoin Suisse have enabled 85,000 Swiss merchants to accept Bitcoin and Ether as a mode of payment.
It's not just global markets, but India also has seen a huge run-up in payment acceptance in Bitcoin. Suryawanshi Restaurants in Bengaluru are accepting cryptocurrencies.
Unocoin has given out the option of buying gift cards in cryptocurrencies. Rug Republic, a Delhi-based decor brand said they are ready to accept payments in Bitcoin and Ether.
Meanwhile, there is a huge list of global companies talking about accepting payments in cryptocurrencies. Pavilion Hotels and Resorts is the latest on the list, with Axa Insurance, Microsoft, Starbucks, Coca Cola pondering about it.
Ether, the second-largest cryptocurrency had also surged 5 per cent as it hit $4,000 Friday, for the first time since May, continuing a strong run after its London upgrade last month. Its price had climbed as high as $4,025 before slipping back to $3,944 Monday. The coin is up nearly 25 percent in the last seven days.
 
Many analysts had projected Ether would rally against its software upgrade that trimmed the pace at which the supply of Ether rises. While many had said decreased supply could increase prices owing to scarcity. Some had touted the prices would spiral downwards.
 
Despite not holding gains on Monday, Ether has outperformed Bitcoin this year. This year, the second-largest coin has surged over 400 percent. It started the year at $736, clocked an all-time high of $4,189 in May. Bitcoin, on the contrary, has surged over 75 percent. It started the year at a price of 29k and hit an all-time high of $64,107 in mid-April. August marked Ether’s second consecutive monthly advance and its best performance since April.
 
But, Ether is sharing this limelight with other altcoins. A rise in prices of smaller coins and the introduction of newer coins have pushed the crypto market cap to $2.3 trillion. Cardano, the number three crypto, has surged to $2.91. Its market cap is nearing $100 billion as investors take interest in smart contracts. Polkadot and Solana are about 36 and 45 percent higher, respectively, in the last seven days.
 
But experts are divided between what’s pushing the market higher. Some believe speculators are moving from main cryptos to newer offshoots. Others believe near-zero interest rates and stimulus checks have pushed investors towards ‘wonkier’ assets.
 
Regardless, more and more analysts are favouring Ether over Bitcoin now. “ETH has higher volatility than Bitcoin and a similar liquidity profile as Bitcoin,” Wilfred Daye of Engima Securities said. But “in the long run, ETH has a real chance of outperforming,” he added.
 
Raoul Pal, an economist and a former hedge fund manager has similar views. Pal, a long-time and the most vocal Bitcoin bull recently said he has invested 55 percent of his savings in Ether and only 25 percent in Bitcoin.
 
As Ether’s supply decreases and demand rises exponentially, Pal says, there is one outcome: “An exponential price rise, there is no other outcome.”
 
Pal also said he expects Bitcoin to soar 500 percent to trade between 250,000-400,000 by March 2022. He had also said Ether would have surged to $20,000 by that time.
 
Yet, not everyone is bullish about Bitcoin’s future. John Paulson – an American billionaire who had betted against the US housing market in 2008 – had dismissed cryptos as an asset class. He said cryptocurrency prices will eventually crash to zero.