The surge in the price of bitcoin towards $100,000 (£79,900) is the most remarkable of the market reactions to Donald Trump’s election victory.
The president-elect’s pledge to create a White House centred on cryptocurrency and the promise to make computer-generated currencies more acceptable are among the factors driving the price upwards.
Bitcoin, similarly to gold, is seen by some investors as a way of circumventing the risk in dollar assets.
Geopolitical tension is rising by the day as symbolised by Russia’s choice to fire a hypersonic intermediate range ballistic missile into Ukraine.
It was the first use of such an advanced weapon, without a nuclear warhead, and intended to show that the Kremlin is ready to upgrade responses to the US and Britain allowing Kyiv to deploy longer-range rocketry.
There are economic reasons explaining why billions of dollars of cash is heading into alternative assets.
Trump’s tax-cutting plans are seen as likely to add to an already bulging American budget deficit. The early reaction has been to drive the dollar higher against the euro, sterling and other currencies.
But the scale of America’s debt pile, at 123 per cent of output and rising, is a cause for future concern. Even the world’s reserve currency could blow up.
Gold priced in pounds hit an all-time high in latest trading, at £2160 per troy ounce. The latest rise takes gold past the previous record set in 1979 amid the geopolitical crises following the Russian invasion of Afghanistan and the US-Iranian hostage crisis.
Bitcoin too is seen as a safe haven but also is being propelled by prospective changes on Wall Street.
The latest climb has been fuelled by the announced departure of Gary Gensler as chairman of the Securities and Exchange Commission (SEC). Gensler, anticipating the sack, pointedly has decided to leave at noon on inauguration day just as Trump is taking the oath of office.
He has been a bulwark against the spread of bitcoin into mainstream finance, only authorising exchange traded funds in crypto when ordered to do so by the courts. Crypto has moved to the heart of Wall Street.
It was during the first Trump administration that bitcoin futures and options contracts were first traded in Chicago.
Early in 2024 exchange traded funds, which allow retail and professional investors to deal in complex assets won approval. Blackrock and other asset managers now hold $85billion (£68billion) in digital currencies.
The runaway price of bitcoin also is being driven by software magnate Michael Saylor, who runs California-based Micro Strategy. The company aggressively had increased its exposure since Trump’s election, buying $7billion of cryptocurrency.
It is financing its purchases through heroic fundraising. It has issued $4.6billion of new shares and a convertible bond.
There was so much demand that it was able to increase the size of the bond offer to $2.6billion.
One might have thought investors would be nerve-wracked by the splurge. Instead, Micro Strategy shares jumped a further 15 per cent in recent days.
They have now risen 900 per cent over the last year, driving the firm’s market value to an astonishing $89billion (£71billion).
The group is now thought to be the world’s largest corporate holder of bitcoin, with an overall stake worth $31billion (£25billion).
There is a reminder of previous efforts by financiers to dominate commodity/asset markets. In 1980 Texas oilman Nelson Bunker Hunt sought to corner the silver market, acquiring the rights to $4.6billion (£3.6billion) of the precious metal.
But US central bank the Federal Reserve stepped in and burst the bubble. Bunker Hunt’s wealth was wiped out.
An attempt by a trader at Japan’s Sumitomo Bank in 1990 to corner the copper market ended in disaster and a fraud trial.
There is a huge difference between buying gold and other precious metals, and bitcoin. Traders in metals know there is something solid behind their purchase.
Bitcoin is mined by computers and no one really has a clue about this how this new-fangled currency is created.
When the herd stampedes it is good time to beat a retreat.
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