Bitcoin (XBT) hit a high of more than $48,000 after Tesla (TSLA) reported a $1.5 billion investment in the cryptocurrency and said it could soon be used to buy its electric cars. Bitcoin was up some 5%, while the US dollar index was down 0.6%. Tesla isn’t the first company to dabble in bitcoin, but it’s definitely the most prominent one: A vote of confidence from the richest man in the world. More and more companies start accepting bitcoin, this will only lead to further increases in demand in a market which is limited in supply. The US dollar is the world’s reserve currency, meaning that companies, countries and central banks are keeping it in their accounts. It’s also the currency most used in transactions around the globe.
The euro and China’s yuan have become more popular in recent years and cryptocurrencies have arrived on the scene. But for now, there’s nothing to knock the dollar’s status. Reserve investors such as central banks aren’t looking for the biggest return. They look instead for value-preserving investments. And while bitcoin’s volatility might diminish as the cryptocurrency market matures, it hasn’t so far. US Treasury yields, which follow interest rate expectations, have ticked up recently amid hopes for a faster economic recovery. But economists at Capital Economics don’t think this trend will last given the Fed’s stance on low rates. The vaccine rollout paired with continued government support could lead to a mini economic boom in the summer, and lead more optimistic investors to take some risks. That would be bad for the super safe US dollar, as those investors could favor riskier currencies.