Tuesday , October 26, 2021

Bitcoin’s Notorious Volatility Clouds Optimism As the Digital Currency Zooms Past $40,000

One week into the new year, Bitcoin’s dizzying rise is prompting questions about what’s fueling it and how long it can go on before yet another crash. One factor, as it turns out, could be greater clarity concerning Bitcoin’s potential to enter the mainstream of retail payments after a dozen years functioning as an exotic—and volatile—investment vehicle.

The digital currency’s price broke through the $40,000 barrier over the past day or so, climbing to just shy of $41,000 by Friday morning. That represents a quadrupling just since early October and a quintupling over the past 12 months. Several factors could account for the currency’s steep rise, experts say, including buying by institutional investors seeking an inflation hedge. 

Another factor involves a highly active U.S. government printing press, which has flooded the market with dollars in recent months and caused the greenback’s value to drop relative to other national currencies. Since Bitcoin’s price is typically quoted in U.S. dollars, that has allowed the cryptocurrency to command steadily higher prices.

But perhaps the most interesting factor for payments professionals is the evolving potential for Bitcoin to become a more widely used medium of exchange, beyond being just a store of value. Major payments players like PayPal Holdings Inc. and Square Inc., for example, have adopted cryptocurrency strategies that make Bitcoin easier to obtain and spend.

PayPal in November said it would introduce a feature later this year to allow PayPal wallet holders—and, later, Venmo users—to spend Bitcoin, Bitcoin Cash, Ethereum, and Litecoin at some 28 million merchants that accept PayPal, first in the United States, then later overseas. While users would spend crypto, merchants would receive dollars. The feature, which should raise PayPal’s profile at the physical point of sale, involves no additional fees for merchants.

Meanwhile, Square’s Cash App has become a virtual trading machine for Bitcoin, which now accounts for some three quarters of the app’s revenue. For the quarter ended Sept. 30, Square’s Bitcoin revenue totaled $1.63 billion, just edging out the company’s $1.6 billion in trading costs. That helped the 7-year-old Cash App account for two-thirds of Square’s revenue that quarter.

Still, Bitcoin has a long history of spectacular crashes. Most notoriously, the currency reached a then all-time high of almost $18,000 in December 2017, only to see that value cut in half by February. By December 2018, it was trading at less than $4,000.With a history like that, nobody’s predicting Bitcoin’s heady rise can go on for long. But a four-fold increase just since October has fueled plenty of hope—and speculation.

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