The digital currency Bitcoin has reached new highs this week. Having hit the $3,000 mark earlier this month, the cryptocurrency climbed past $4,000 for the first time on Sunday. The bitcoin price has more than quadrupled since January 1, putting even the best-performing S&P 500 stocks to shame. Bitcoin’s market capitalization has risen to more than $70 billion, cementing its position as the largest cryptocurrency ahead of Ethereum with a market cap just shy of $30 billion.
In its relatively short lifetime (bitcoin was introduced in 2009), the cryptocurrency has had its ups and downs, but what is driving this year’s exceptional rally? “Bitcoin is benefitting from geopolitical tensions – trading in Japan and Korea has increased significantly over the last few months,” Brian Kelly, head of BKCM, which runs a digital asset strategy, said in an email to CNBC. Bitcoin, like gold, is widely considered a safe-haven for investors worried about the stability of financial markets amid rising tensions between North Korea and the United States.
Eager investors should be careful however, as the cryptocurrency has proven highly volatile in the past. “I wouldn’t be surprised if the bitcoin price dropped to $1,000 by the end of the year, I wouldn’t be surprised if it climbed to $10,000 either”, financial analyst Markus Miller, warns of the currency’s unpredictability on German news channel n-tv. As our chart illustrates, the gold price is much more stable than the price of a bitcoin, making the precious metal the safer haven when in doubt.