Bitcoin hit a market capitalization of $1 trillion as it rose to yet another record high on Friday, countering analyst warnings that it is an “economic side show” and a poor hedge against a fall in stock prices.
The world’s most popular cryptocurrency jumped to an all-time high of $56,399.99, posting a weekly gain of 14%. It has surged nearly 70% so far this month and was last up 8% at $55,664.
Bitcoin’s gains have been fueled by signs it is gaining acceptance among mainstream investors and companies, from Tesla, Mastercard and BNY Mellon.
Still, many analysts and investors remain skeptical of the patchily regulated, highly volatile digital asset, which is little used for commerce.
Analysts at JP Morgan said bitcoin’s current prices were well above estimates of fair value. Mainstream adoption increases bitcoin’s correlation with cyclical assets, which rise and fall with economic changes, in turn reducing benefits of diversifying into crypto, the investment bank said in a memo.
“Crypto assets continue to rank as the poorest hedge for major drawdowns in equities, with questionable diversification benefits at prices so far above production costs, while correlations with cyclical assets are rising as crypto ownership is mainstreamed,” JP Morgan said.
Bitcoin is an “economic side show,” it added, calling innovation in financial technology and the growth of digital platforms into credit and payments “the real financial transformational story of the COVID-19 era.”
Other investors this week said bitcoin’s volatility presents a hurdle for it to become a widespread means of payment.
All digital coins combined have a market cap of around $1.7 trillion.