Bitcoin, a digital currency sold and bought online, just hit a record high of $19,786.24. This new record surpassed the previous one, set in December 2017, and marks a tripling in value in 2020 and an almost doubling in price since September. This rally comes alongside high performance in the stock market, as the Dow recently reached a record 30,000 points. Market jubilation comes as the result of the Federal Reserve’s inpouring of capital into markets, along with hopes for a Covid vaccine in the near future. Because of this anticipation, bond yields are low, as investors are willing to put their money in more risky assets: chief among which is Bitcoin, an asset known for its volatility. Additionally, services like Cash App and Robinhood (retail investment platforms) that sell stocks as well as bitcoin contribute to high asset prices.
It will be interesting to see how the price of Bitcoin and the Dow change in the next month. Although BioTech companies have been scurrying to get the FDA to approve their vaccines, it is unlikely a vaccine will be widely available before the Spring. After some point, investors may be sick of waiting for the anticipated normalcy and these high stock prices may prove artificial. It is also likely that the advent of popular investment apps, such as Cash App and Robinhood, which make it easier for young people and first-time investors to invest, will contribute to cause high stock prices, as this larger base of investors pour into a wider range of stocks, even those that would not receive as much attention without the accessibility these apps provide.
3 comments:
I agree with your point that Robinhood and Cashapp have contributed to more investment from young teens. During lockdown, many saw the stock growth that companies such as Tesla experienced. This may have incentivized them to invest in stock market.
Yes, this is definitely true. While this is overall a good thing, I wonder whether this leads to inflated stock prices that do not accurately display a stock's value. It would be interesting to know how similar this effect is to other times when intense demand for stocks, like in the Dotcom bubble crash, did not reflect the true value of a company. It is less likely this phenomenon would represent inaccuracies in Bitcoin's price, but is definitely a problem for stock prices in general.
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