Bitcoin tops US$34,000 as record-breaking rally resumes

Some well-known investors are backing Bitcoin. Photo / Getty Images

Bitcoin climbed above $34,000 for the first time on Sunday, extending a record-breaking rally in the volatile cryptocurrency that delivered a more than 300 per cent gain last year.

With trading in key financial markets yet to commence in 2021, bitcoin has resumed its dizzying ascent, rising more than 10 per cent in the first few days of January. By late afternoon in London on Sunday, it had given up some of its early gains to dip just below $33,000.

"Even the most bullish of bitcoin advocates could not have foreseen such a meteoric rise in price in such a short space of time," said Marcus Swanepoel, chief executive of Luno, a London-based cryptocurrency platform. History suggests a small pullback could follow, he added.

"But the pattern we've seen in the build up to this milestone — a consistent increase, rather than one sharp spike — sets bitcoin up extremely well for this year," Mr Swanepoel said. He added that "something approaching the $100,000 mark before the year's end" was possible.

The rally has fed concerns that bitcoin is set to repeat the events of three years ago, when a bull market dramatically collapsed. When the cryptocurrency set a record high in November, economist Nouriel Roubini called it a "pure speculative asset and bubble with no fundamental value".

But some analysts have pointed to an increase in corporate and institutional interest in bitcoin. Well-known investors such as Paul Tudor Jones and Stanley Druckenmiller have thrown their weight behind it, and crypto-focused hedge funds have outshone peers.

The recent gains have far outpaced mainstream asset classes. Bitcoin rose 305 per cent last year, compared with the 16 per cent lift in Wall Street's blue-chip S&P 500 stock index, and gold's 25 per cent rally.

Marc Bernegger, a board member at digital asset manager and broker Crypto Finance, said he would not be surprised to see a "healthy" correction in bitcoin's price in the short term. But he is positive over the longer term, due to "massive demand from professional and non-speculative oriented investors".

Fundstrat analysts in late December said "the conditions remain in place for a continued rally", citing institutional demand and a clearer approach to the sector from US regulators, as well as the possibility that the latest fiscal stimulus package agreed by Congress could fuel demand from retail investors.

Bitcoin's rally has been helped by signs that the cryptocurrency is becoming more integrated into the financial system. In October, PayPal said US customers would be given the option of holding bitcoin in their digital wallets. In December, crypto exchange Coinbase filed with regulators to go public.