Bitcoin Price Surges as Optimistic Investors Seek 'Hype Assets' After Vaccine, Election News

Ubiquitous cryptocurrency Bitcoin hit a three-year high this week, as optimistic investors headed for riskier assets amid positive COVID-19 vaccine news and increased certainty about the future of the U.S. leadership.

The currency, which launched in 2009, headed above $18,000, climbing almost 10 percent on Wednesday. It had been trading at around $5,000 in March as investors stuck to safer investments.

The move mirrors stock markets where equities have approached record highs in recent days, with investors looking to an end in sight following promising news from both Pfizer and Moderna's vaccine trials.

On Monday, the Dow Jones Industrial Average up 1.6 percent, or 471 points, closing at a record high, the last of Wall Street's three major indices to recover ground lost due to economic stress caused by the pandemic.

On November 9, American pharmaceutical firm Pfizer and German biotechnology company BioNTech announced their COVID vaccine was 90 percent effective at preventing the disease.

A week later on Monday, biotechnology firm Moderna claimed its vaccine was 94.5 percent effective.

The last time Bitcoin saw a spike of this magnitude was 2017, when price gains were largely fuelled by a swell in consumer interest, with markets closely matching trends in online search engines. This time, some analysts say it's different.

"This rally isn't being driven by retail, so history isn't repeating itself yet," Evgeny Gaevoy, founder and CEO of crypto liquidity provider Wintermute told Newsweek.

He said some people in the market believe that cryptocurrencies have become more attractive to institutional investors, such as investment banks, pointing to an increase in traffic on crypto exchanges and a change in internet search trends to back this up.

Another explanation for the rally is that buying Bitcoin may act as an inflation hedge against the heavy stimulus from central banks, which is putting downward pressure on the value of traditional currencies.

Bitcoin has a limited supply, which is capped at 21 million. With central banks pumping cash into the system across the world to deal with the pandemic, it may now seem like a better place to retain value.

A third view in the market is the rally is, yet again, driven by hype.

"Bitcoin has been a slow-brewing bull market for a few months, it's now been pushed it over the edge to this kind of parabolic curve that we've seen before," Ranko Berich, head of market analysis at Monex Europe told Newsweek.

Berich compared Bitcoin with the dizzying heights car manufacturer Tesla has reached on the stock market this week following its inclusion into the S&P 500.

He noted that "hype assets" such as these traditionally rely on speculation and optimism from retail investors when their price soars.

Concurring with this view, Craig Erlam, senior market analyst for Europe at Oanda, wrote in an email: "There's something about the immense gains of the last month that make me a little nervous, given past experience."

This photograph taken on September 24, 2020 shows a physical imitation of a Bitcoin at a crypto currency "Bitcoin Change" shop, near Grand Bazaar, in Istanbul. Bitcoin prices have rallied off the back of positive economic outlooks and more appetite for risk. OZAN KOSE/AFP via Getty Images