Bitcoin soared through the key $50,000 level on Tuesday for the first time as the growing acceptance of the world’s biggest cryptocurrency among large banks and investment funds continued to draw in mainstream investors.
After a meteoric rise in which its value increased by 75% since the start of the year, the currency hit $50,547.70 (£36,320) per coin in European trading at around 12.35 GMT.
The price surge means Elon Musk’s electric carmaker Tesla has piled up a virtual profit of $420m in the week since the entrepreneur said the business had bought bitcoins then worth $1.5bn. At the time of the announcement, on 8 February, bitcoin was trading at $39,406.
Only last March, bitcoin was trading at below $6,000 and in 2016 a single coin was worth less than $400.
Analysts said the increase was a combination of endorsements from prominent business people, including Musk, and several investment banks that have said they would buy the currency.
Russ Mould, investment director at AJ Bell, said bitcoin’s longer-term prospects depended on whether more people embraced the cryptocurrency. “The more people that adapt it and use it as money, the greater the chances of it perhaps being taken on board as a mainstream currency,” he said.
Fawad Razaqzada, market analyst with ThinkMarkets, reckons some investors will be taking profits, as the $50k milestone had been seen as a key target. Once the profit taking is over, it could soar towards $55,000.
“Bitcoin remains fundamentally supported because of growing demand as major companies warm towards cryptocurrencies. So, we may not see the repeat of the late 2017-style sell-off,” he added.
PayPal users in the US can buy and sell a selection of cryptocurrencies, while Jack Dorsey, Twitter’s co-founder and chief executive, recently said he and the rapper Jay-Z would buy 500 bitcoin – now worth £25m – to start an endowment fund for Africa and India.
Morgan Stanley has said its $150bn investment fund is looking closely at a large purchase of bitcoins, while it is understood that Goldman Sachs and JP Morgan, which have been wary of cryptocurrencies, are soon to announce investments.
As the price of bitcoin rocketed in late 2017, JP Morgan’s chief executive, Jamie Dimon, called the currency a fraud that would not end well, saying he would “fire in a second” any JP Morgan staff member trading bitcoin, because it was against the bank’s rules and was “stupid”.
More recently, however, Dimon’s views have changed, and he conceded at the end of last year that a number of “very smart people” were buying the cryptocurrency, although he said it was “not my cup of tea”.
Critics have accused bitcoin miners who search for “hidden” coins of burning through terawatts of energy on their computers and of creating an unregulated market vulnerable to sophisticated fraudsters.
There are also many sceptics who say the price boom cannot last. Last month the Bank of America Securities’ chief investment strategist, Michael Hartnett, said the recent surge in price may be “the mother of all bubbles”.
European Central Bank governing council member Gabriel Makhlouf said he would not buy bitcoin. He also compared investment in the cryptocurrency to the 17th-century Netherlands tulip craze, which ended in collapse and widespread personal bankruptcies.
Bitcoin investors should be prepared to “lose all their money”, he said, repeating a warning from last month, though he added that he is not advising people whether or not to invest in the digital currency.
“Personally, I wouldn’t put my money into it, but clearly, some people think it’s a good bet,” said Makhlouf, who is also governor of Ireland’s central bank. “Three hundred years ago, people put money into tulips because they thought it was an investment.”
Bitcoin fell back below $50,000 at the start of the Asian trading session on Wednesday and was fetching $49,322 at 5am GMT.