about 3 years ago • 3 mins
Bitcoin earned its wings on Thursday: the OG cryptocurrency rose to a record high, passing $23,000 and taking this year’s gains to over 200% 🏆
What does this mean?
There are a few things driving this rally. For starters, plenty of investors think the digital currency is poised to become the new gold – that is, an effective way to diversify their portfolios and protect against inflation. Some might even be backing it to become the new US dollar: PayPal’s recent announcement that it’ll be allowing cryptocurrency transactions should boost its chances of becoming a mainstream payment method 💵 But the biggest driver of this particular rally might not be retail investors at all: it could be down to institutional investors, who are piling into the cryptocurrency in their droves to make their portfolios even more diverse.
Why should I care?
For markets: The Oracle has spoken.
Some big investors are already starting to throw around pretty punchy price targets for the cryptocurrency, with one even teasing the $400,000 mark 🥊 But skeptics – not least Warren Buffett – might point to 2017, when bitcoin went on a similar tear before it crashed and burned. Somebody might want to remind the “bitcoin’s the new gold” evangelists about that one…
Zooming out: Mad men.
Speaking of big price moves, one small crypto fund has more than tripled in value since its debut just over a week ago – far outpacing the top ten digital currencies it’s tracking. The fund’s price is now 369% higher than the values of both bitcoin and ethereum, meaning investors could buy them outright for far less than they’d need to access the fund 🤷♀️ Odds are it picked up steam from arbitrage-focused institutional investors, only then to catch retail investors’ attention. And that might just go to show how out of hand the craze for anything under the "bitcoin” brand might be getting...
Keep reading for our next story...
What does this mean?
The central bank decided to keep the country’s interest rates at a record-low 0% for now, but it also said it was penciling in an increase for early 2022. That’s when it said it’s expecting economic activity to approach pre-pandemic levels – around six months earlier than its previous prediction.
That outlook stands out next to those of the world’s biggest central banks, all of which are expected to keep rates low for a while to support their coronavirus-hit economies 🦠 See, one of central banks’ main tools for keeping things stable is lowering interest rates, which brings borrowing costs down. That should – at least in theory – spur individuals and companies to take out loans, spend cash, and boost economic activity.
Why should I care?
The bigger picture: Governmental block.
Norway hasn’t just relied on central bank policy this year: it’s leaned heavily on government aid too. You’d think that would’ve served as an example for the US, which has been at a standstill over economic aid measures for months and is cutting it fine if it wants a deal before Christmas 🏦 At least the US central bank is doing its part: it reiterated its lower-for-longer interest rate policy on Wednesday, while promising to pump cash into financial markets to keep them afloat.
For you personally: Big whoop.
Interest rates – especially Norwegian ones – might not get your pulse racing, but knowing where they’re headed can help you make your portfolio work harder for you 🏋️♀️ You might, for example, want to gear your investments more toward stocks than bonds when rates are low, because companies are able to borrow more money for less and, in turn, grow their businesses. A rate hike, on the other hand, could knock stock markets – and your portfolio – off balance, which is what happened back in 2018.
Disclaimer: These articles are provided for information purposes only. Occasionally, an opinion about whether to buy or sell a specific investment may be provided. The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment advisor.