Bitcoin Takes a Breather from Tesla Rally for Now

Bitcoin gave up some of the heady gains that it made following the revelation that Tesla had poured some US$1.5 billion into the bellwether cryptocurrency as part of its balance sheet.

Euphoria over the world’s most valuable vehicle maker by market cap betting big on Bitcoin sent the cryptocurrency soaring past US$48,000 at one stage before giving up those gains.

Now that the initial rally has receded, Bitcoin has slid to US$44,000 in Asian trading on Thursday and while Bitcoin is gaining traction among high profile investors – Elon Musk is just the latest – volatility in the cryptocurrency is par for the course.

Criticizing the recent spike in Bitcoin and cryptocurrency prices as “speculative mania,” a top Bank of Canada official noted that such assets don’t have the qualities to become the money of the future.

In a virtual speech at the Institute for Data Valorisation, Deputy Governor of the Bank of Canada, Timothy Lane, noted that costly verification methods and unstable purchasing power make cryptocurrencies a “flawed” method of payment.

And in a thinly-veiled reference to Musk’s backing of Dogecoin, Lane said,

“The recent spike in their (cryptocurrency) prices looks less like a trend and more like a speculative mania – an atmosphere in which one high-profile tweet is enough to trigger a sudden jump in price.”

Lane’s recent comments underscore the seriousness with which policymakers are now scrutinizing cryptocurrencies as speculative fever sweeps these largely unregulated markets.

Last month, even Christine Lagarde, President of the European Central Bank, who has for the most part been open to cryptocurrencies, took aim at Bitcoin’s role in allegedly facilitating criminal activity, saying the cryptocurrency has been enabling “funny business.”

When cryptocurrencies were well below US$1 trillion in market cap, they were relatively easy to ignore and top policy brass could bring them up at banquets and conferences for a chuckle or two.

But as an increasing number of high-profile investors and companies are putting a portion of their portfolios into Bitcoin and cryptocurrencies, as a potential hedge against inflation, the narrative shifts from pure speculation to a somewhat more existential threat to central bank fiat currencies and their monopoly on the monetary system.

It’s one thing if a small “fringe element” of tech-savvy investors bet on Bitcoin, over concerns that central bank debasement of fiat currencies could lead to inflation, but quite another when high-profile investors take up the torch and lead others to follow into this nascent asset class.That concern over existential threat was hinted at when the Bank of Canada’s Lane revealed,

“Only a central bank can guarantee complete safety and universal access, and with public interest – not profits – as the top priority.”