Why investors avoiding currency volatility are betting on Bitcoin

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Photo: Getty Images
Photo: Getty Images
Photo: Getty Images
  • Bitcoin has soared to highest level since 2017. 
  • PayPal has been a contributor to this surge after the company announced in October it would open its network and enable holders to use Bitcoin and other cryptocurrencies.
  • According to analysts, Bitcoin can act as a safe haven and hedge against fiscal stimuli and inflation. 

The most notorious cryptocurrency, Bitcoin, rocketed past $18 000 for one coin this week as a growing number of investors backed it as an alternative to other assets.

As of Friday afternoon, one Bitcoin cost R287 781.66.

About a month ago, PayPal said it would open its network and enable account holders to use Bitcoin and other cryptocurrencies. And the virtual currency has soared since this move.

Marius Reitz, the general manager for Luno Africa, said there were several factors that have played a role in the demand for Bitcoin and "PayPal's entry into crypto is significant as they revealed in October that they will open for buying and selling of cryptocurrencies, and we are seeing some signs of PayPal's entrance in the crypto market".

The last time Bitcoin was valued at nearly $20 000 a coin was in December 2017.

"We've seen a lot less hype and excessive speculation during the current rally compared to 2017. The Bitcoin price is almost back to its previous high with very little noise - it's a sign that perhaps it is being driven by institutional demand versus retail speculators," said Reitz.

Farzam Ehsani, the CEO and co-founder of VALR.com, said there were a few factors contributing to the Bitcoin price going up 40% in the past month, and those were the adoption of Bitcoin and cryptocurrencies from both the retail and institutional sectors.

"In the retail sector, recently, PayPal has enabled over 300 million customers to be able to buy and sell Bitcoin and other cryptocurrencies and that was a big boon for the industry," he added. 

Companies scrambling to save their balance sheet

According to Ehsani, institutions such as Nasdaq-listed companies have recently bought Bitcoin to the tune of half a billion US dollars to serve as a reserve asset for their balance sheets.

He added what this meant was they used to have dollars but saw it better to have Bitcoin because they believed Bitcoin would do better at preserving their value than the dollar.

"So, companies are now adopting a micro-strategy where they have started to buy Bitcoin for themselves as corporate and institutions and there are also hedge fund investors that have started to recognise and move to Bitcoin as well."

Reitz corroborated this, saying there had been substantial and increasing institutional interest in Bitcoin which was driving up the price.

Is Covid-19-impacted fiscal stimuli a cause for the surge?

Bitcoin has rallied more than 150% in a jump crypto enthusiast have accredited to unprecedented monetary and fiscal stimulus in response to the Covid-19 crisis.

While some countries have put into place stimulus to soften the blow of Covid-19 on its citizens, other measures have not been well received.

Ehsani said with Covid-19, central banks were trying to prop up their economies by printing money through stimulus and what that meant was while Bitcoin was scarce, there was more liquidity that was getting pumped into the economy in the traditional sphere and that devalued the asset.

"So, if you think in dollar terms, you can think of it as Bitcoin appreciating or the dollar depreciating," he added.

Some investors have argued the virtual currency could act as a safe haven during times of turbulence and could be a hedge against rampant central bank money printing.

Reitz explained how Bitcoin could also be used as a hedge against inflation as it operated on a model of deflation, meaning gradually fewer and fewer Bitcoin would be released until supply stopped completely when the number reached 21 million.

"There are currently around 18.5 million Bitcoin in circulation. This is different from fiat currencies which use an inflationary model where central banks can print extra units of currency at will. This process is often criticised and has historically led to major economic problems in countries such as Venezuela and Zimbabwe," he said.  

Future prospects of Bitcoin

In March the virtual currency crashed and according to Reitz, there was some doubt about cryptocurrency from the traditional finance sector, "but Bitcoin has shown itself to be resilient in its first global crisis."

Reitz made the example of how Bitcoin outperformed traditional markets like the S&P 500 and gold this year, indicating that cryptocurrency is able to decouple from macroeconomic movements.

According to, Reitz the price of Bitcoin is on an upward trajectory despite all the ups and downs over the past few years.

"Well known American hedge fund manager Paul Tudor Jones is bullish on Bitcoin. He recently declared the cryptocurrency the best hedge against inflation and compares investing in Bitcoin now to investing in early tech stocks, like Apple and Google." said Reitz.

Reitz explains the volatility of the crypto currency as the "early stages of the creation of a new financial system". 

"We believe we are still in the early stages of the creation of a new financial system. Having said that, awareness and understanding have grown substantially in such a short time and cryptocurrencies have gone through a maturing process," said Reitz. 

"Bitcoin functions as a payment system, similar to bank transfers or credit cards, but with greater transparency and cost savings. We're still at the early stages of it as a payment system, though accessibility is enhanced by companies like PayPal entering the crypto market. It is currently mainly used as an alternative store of value and speculative and investment asset," said Reitz. 

Ehsani concluded that "there are many factors here and we are in a real sensitive spot in the financial world and people are realising that the traditional financial system is going through some very difficult times and many people are viewing Bitcoin as a hedge to any difficulties or blowouts we might see in the traditional financial world."

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