Bitcoin was up some 5% Tuesday afternoon, while the US dollar index was down 0.6%.
“As more and more companies start accepting bitcoin, this will only lead to further increases in demand in a market which is limited in supply,” wrote Fawad Razaqzada, analyst at ThinkMarkets, in a note to clients.
“Bitcoin is becoming an alternative asset,” said Brad Bechtel, global head of FX at Jefferies. “It’s not correlated to anything else in the market.”
And that makes it an attractive asset to add to a portfolio, Bechtel said.
But don’t turn all your hard-earned dollars into bitcoin just yet.
The US dollar is the world’s reserve currency, meaning that companies, countries and central banks are keeping it in their accounts. It’s also the currency most used in transactions around the globe.
Sure, the euro and China’s yuan have become more popular in recent years and cryptocurrencies have arrived on the scene. But for now, there’s nothing to knock the dollar’s status.
Bitcoin has jumped more than 30% in February alone — an impressive increase. But “that kind of price action is the exact opposite” of what reserve investors are looking for,” Marc Chandler, chief market strategist at Bannockburn Global Forex, told CNN Business. “Rather than making it more attractive as a reserve asset it makes it less attractive, because volatility is risk.”
Reserve investors such as central banks aren’t looking for the biggest return. They look instead for value-preserving investments. And while bitcoin’s volatility might diminish as the cryptocurrency market matures, it hasn’t so far.
Weaker dollar under Biden
The US dollar’s reserve status might not be at risk just yet, but there’s a strong chance the it will continue to weaken in the near term.
US Treasury yields, which follow interest rate expectations, have ticked up recently amid hopes for a faster economic recovery. But economists at Capital Economics don’t think this trend will last given the Fed’s stance on low…