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Bitcoin imbalance

A week away from the office and markets seemed to have become even madder. As I started my break the Reddit versus Wall St saga was still rumbling on. Now I return to news that Tesla has ploughed $1.5bn into bitcoin, mashing two bouts of market madness into a single story and sending the price of both the cryptocurrency and Tesla’s share price soaring. 

Bitcoin bulls latched onto the purchase as a sign that corporate attitudes towards the alternative asset are softening, and a precursor of the coming demand from treasury departments that would finally take cryptocurrency mainstream. I’m not yet convinced – risky cash management strategies would be a complete u-turn from the hatch-battening most companies have been doing in response to the pandemic. As Neil Wilson put it in one of his Trader articles this week, “this is normal FX risk x100”. That may be an underestimate – whipsaw volatility makes this an asset to be avoided by anyone unable to stomach the prospect of big losses. Even if bitcoin is flirting with respectability, other areas of the crypto market are much more of a wild west, as the Financial Conduct Authority recently warned. For more on this, listen to our free podcast, Not Your Normal Finance Show which this week focused on the recent crypto currency madness.

They may well, of course, miss out on further gains in bitcoin’s value. But I’m sure, like any good investor, that this is something they will accept as part of their risk management strategy. Covid may have changed much about the world for the time being, but the laws of risk versus reward remain as immutable as the laws of supply and demand that sit behind bitcoin’s mighty rise. 

The fact that 30 per cent of bitcoin buyers surveyed by AJ Bell said they were unwilling to lose any money on cryptocurrencies reveals a worrying lack of understanding of the mechanisms that determine asset prices. None of this is to say that the technology beneath bitcoin – blockchain – won’t go on to become a transformational technology for financial services, or that bitcoin or some other cryptocurrency will have some role to play in a reinvented monetary system – Mark Robinson explores its potential game-changing characteristics in this week’s Further Reading. But I’m not sure buying bitcoin at approaching $50,000 is how you buy into it. 

Things are, thankfully, now starting to get a bit busier in the more normal world of the London market, as results reporting season looms into view. But for now, vaccine news remains the primary concern. While I have been ‘away’ the vaccine squabble that had engulfed AstraZeneca seems to have died down, and progress vaccinating the country has brought a rare boost to national pride. Just as technology was the big story of 2020, so 2021 is likely to be the year when healthcare innovation comes into focus, a story we continued by looking at mooted health reforms in the UK

But there is still little certainty on when life may begin returning to normal; rumours abound that pubs may not open until May, and tough new quarantine restrictions announced this week could brush up against the summer holiday season and spell further pain for the leisure sector. “People should not be booking holidays right now, either internationally or domestically,” warned transport secretary Grant Shapps, bad news for airlines, hotels and tour operators, which had been encouraging their customers to do the opposite. I am glad I have booked already!