Bitcoin’s price rises to $50,000 as mainstream institutions hop on

The price of one bitcoin briefly rose above $50,000 on Tuesday morning to set a new record. By noon Eastern Time, the price had fallen to around $48,500. Bitcoin's price is now far above the previous peak of $19,500 reached in December 2017. Bitcoin's value has risen by almost 70 percent since the start of 2021. No single factor seems to be driving the cryptocurrency's rise. Instead, the price is rising as more and more mainstream organizations are deciding to treat it as an ordinary investment asset. An important milestone came last week when Bank of New York Mellon announced that it plans to begin holding bitcoin on behalf of clients. BNY Mellon is one of the world's largest custodian banks—a bank that takes custody of stocks, bonds, precious metals, and other assets on behalf of large clients. By adding bitcoin to this list, BNY Mellon will give anyone who wants to invest in bitcoin a way to do so that is widely recognized as low-risk. That's important because, traditionally, holding bitcoin has been quite risky. Ownership of bitcoin is determined by control of a corresponding private key. Anyone who gets a copy of a private key—from hackers to burglars—can steal the bitcoins. If the owner loses the private key to a fire or hard drive failure, the bitcoin is lost forever. Because the bitcoin network is fully decentralized, owners have no recourse if their bitcoins are lost or stolen—a fact that has given rise to many hard-luck stories. Banks like BNY Mellon are experts at securely storing valuable assets. As they begin offering bitcoin storage services, holding bitcoins will become no different from holding any other asset. That could coax even more wealthy investors to park some of their wealth in bitcoin.

More and more companies are investing in bitcoin

One mainstream company that has jumped on the bitcoin bandwagon is enterprise software company MicroStrategy, which began buying millions of dollars of bitcoin last year. Today, the company has at least 72,000 bitcoins—worth $3.6 billion at current prices. That represents more than a third of the company's market capitalization. The company recently announced plans to issue $600 million in debt to buy still more bitcoins, and its CEO has encouraged other CEOs to follow his lead. Last week, Tesla announced that it had bought $1.5 billion in bitcoin and was planning to accept bitcoin payments for its cars. In short, the same flywheel that has pushed bitcoin upward for the last 12 years is continuing to spin; as the cryptocurrency's value rises, more people buy it, which attracts more attention and inspires still more people to buy it. Some people believed that this process had played itself out at the peak of the last bitcoin boom in 2017 (or for that matter, the one before that in 2013). But while almost everyone had heard of bitcoin by late 2017, a lot of mainstream institutions were still wary of putting substantial wealth into the virtual currency. Now that resistance seems to be melting. There's obviously still a risk that bitcoin's value could plunge as it has on several previous occasions. But a growing number of investors are seeing it as just another type of asset to include in a diversified portfolio—alongside stocks, bonds, real estate, precious metals, and so forth. And if a lot of people make the same judgment in the coming months and years, bitcoin's value could rise further. Even colorful CNBC personality Jim Cramer recently said he had begun holding bitcoin. "I think it’s almost irresponsible not to include” bitcoin in an investment portfolio, he added. It's worth noting that Cramer once advised viewers not to sell Bear Stearns stock shortly before the firm's 2008 collapse. So his pronouncements should be taken with a grain of salt. Bitcoin's value could also plunge. In the year after bitcoin reached its previous peak in December 2017, bitcoin fell by more than 80 percent—from $19,500 to $3,200. Holding bitcoin remains an extremely risky proposition, and people shouldn't put any more money into bitcoin than they can afford to lose.