The bitcoin, Sensex and Gold – all three asset classes have one thing in common – the 50,000-mark.
The seemingly unstoppable rise of Bitcoin continued with the digital currency rising above $50,000 for the first time. The world’s largest cryptocurrency jumped as much as 4.9 percent to $50,548 yesterday and is now up about 70 percent, so far this year.
Most of the gains came in after electric carmaker Tesla said it had bought $1.5 billion in bitcoin. It also said it would accept the currency as payment. Financial firms Mastercard and BNY Mellon warming up to cryptocurrencies also boosted bitcoin.
The same Bitcoin just one year ago would have cost you $10,000. The price is up almost 200 percent in the last three months alone.
Meanwhile, the benchmark Sensex hit its 50,000-mark in January 2021. The index, which is currently near 52,000, has jumped 8 percent in 2021 YTD. The recover in equity markets has been on the back of a steady decline in COVID cases, better than expected economic and earnings recovery and continued inflows by the foreign investors.
Gold is another key asset class that has crossed the 50,000-mark. The yellow metal hit Rs 50,000 per 10 gram in July last year on the back of the COVID-19 pandemic and the market volatility associated to it. Typically, any sign of uncertainty in the capital markets boosts the appeal of gold as a safe-haven bet, as investors rush away from riskier asset classes.
Gold performed well in 2020 with gains of nearly 28 percent in rupee terms (YTD). This was the second year in a row when gold posted such a stellar rise.
In August 2020, the precious metal hit a record high of Rs 56,200 per 10 gram, however, since then it has pared some gains and is currently trading around the 47,000-mark.
Analysts said gold prices still have the scope to increase by 20 to 25 percent in 2021-22.
However, Bitcoin’s value could more than double by the end of this year to $ 1,00,000, cryptocurrency investment firm Galaxy Digital’s founder Michael Novogratz told BloombergQuint. As per Novogratz, this growth will be due to the fact that more companies are set to allow the use of Bitcoin for purchases, the report said.
Christopher Wood, global head of equity strategy at Jefferies remains bullish on bitcoin despite the recent surge. He advises investors to use any dip to buy digital currency. In December 2020, he decreased some exposure in gold in favour of bitcoin.
“GREED & fear remains extremely bullish on Bitcoin and advises those who are not invested to take advantage of any pullbacks. Remember that institutional ownership of Bitcoin has only just begun,” Wood said in his note.
Regarding equities, Wood believes that rising inflation expectations will boost cyclical and prefers banks and oil-related stocks. For any sort of correction in the equity markets, Wood believes there needs to be a catalyst in the form of an economic downturn or a material tightening in US Federal Reserve’s (US Fed) policy.