Market Overview

Yesterday Bitcoin, a leading digital currency, posted a new all-time high above $48,000 a coin. It may seem remarkable that 25% of the gains were accumulated over the period of two days from $38,000, and after famous business magnate Elon Musk claimed that Tesla has invested $1.5 billion in Bitcoin. 

Such news in itself could spark investors’ attention to the asset. But this could be seen as an expandable reason. The more important reason for the rise in the digital currency could be the fact that  Musk has claimed that Tesla will accept Bitcoin as a means of purchasing the brand’s electric vehicles. Such an approach may seemingly change the nature of the digital currency since it has not been accepted as a means of payment at such a level before. The lack of credibility seen  when the digital currency is not accepted as a payment method is one of the major disadvantages of the Bitcoin. Also the inability to pay with it for regular, off-line goods and services is seen to severely diminishes its advantages.

However, the paradox of Bitcoin’s nature was immediately demonstrated when it jumped by such a large amount as a reaction to  what Tesla’s founder had stated. The extraordinary volatility of the digital currency seems to undermine the very possibility of using Bitcoin as a means of payment. So, according to Musk if it is to be accepted as direct payment for car purchases, then the price of Bitcoins would possibly have to be changed constantly on an hourly basis. Otherwise Tesla would most likely have to accept huge exchange risks. Such payment practices may jeopardize the expectations of both the car manufacturer and the buyer, they may bear additional expenditures, and increase the cost of sales.

So, the first impression of Musk’s words is that he most likely once again propelled his company and himself in order to receive another promotion on a worldwide scale. Meanwhile, he made 25% of the investment just in two days or 4560% annually on $1.5 billion. However, the truth is that such widely touted investments would probably not make Bitcoin a safe financial instrument. Just the opposite, it confirms its high speculative nature and the fact that investors may face extremely high risk when investing in this asset.

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Analysis and opinions provided herein are intended solely for informational and educational purposes and don't represent a recommendation or investment advice by TeleTrade.