Bitcoin advanced for the second consecutive day yesterday, gaining 3.42% during the session and closing at the $58,870.0 level.
Other cryptocurrencies also closed the session in positive territory, such as Ethereum, which gained 0.95% and closed at the $1,822.78 level, followed by Litecoin, which gained 2.19% against the US dollar during the session and closed at the $206.110 level. This shouldn't be surprising taking into account that the main cryptocurrencies' performance seems to be tied to Bitcoin's.
As we've previously mentioned, market sentiment is currently favoring cryptocurrencies mainly because of the support it has gotten from big market names, such as Elon Musk, and its adoption by companies and financial institutions like Tesla and MasterCard.
Bitcoin's popularity can also be linked to the idea that it can be used as a hedge against inflation, which is now a prominent idea in the markets mostly due to the U.S. government's recent $1.9 trillion stimulus bill.
The US government has already distributed around 90 million stimulus checks, worth about $242 billion, among the population. This, compounded with the Federal Reserve's ultra-loose monetary policy stance, has turned inflation into the biggest tail risk the markets are currently facing, or at least this is what Bank of America's Fund Manager Surveys appear to indicate.
Despite Bitcoin's prominence and popularity, not everyone in the markets believes that Bitcoin is the new gold. For example, analysts at Bank of America recently attacked the cryptocurrency, claiming that it is impractical and very volatile, making a reference to its lack of fundamental value.
“The main portfolio argument for holding Bitcoin is not diversification, stable returns, or inflation protection, but rather a sheer price appreciation, a factor that depends on Bitcoin demand outpacing supply,” said the analysts.
The analysts also made a reference to the effects of Bitcoin mining on the environment, as it employs huge energy quantities. This concern is driving the Chinese government to restrict cryptocurrency mining, as it is looking to reach carbon-neutrality by 2060. High-profile policymakers and personalities have also joined Bitcoin critics, such as Treasury Secretary Janet Yellen and Bill Gates.
The Bank of America analysts' assessment heavily contrasts with that of JPMorgan, who recently compared Bitcoin with gold, describing it as a "safe-haven asset". Similarly, Citibank claimed a couple of weeks ago that Bitcoin is currently at a "tipping point" and could eventually turn into a widely accepted currency, an interesting argument considering that Bitcoin's volatility seems to disqualify it as a medium of exchange and as a storage of value.
The Bitcoin market is highly volatile, so while it is tempting to speculate on its direction, the future is not clear. Some expect Bitcoin to eventually hit the $100K level, while others consider it a bubble and a risky option for retail investors. In any case, claiming that we are currently facing a bubble may be misleading given our lack of appropriate tools to value crypto assets.
By 12:36 GMT, Bitcoin rose by 5.56% against the US dollar, hitting the $57,824.2 level.