Back to bitcoin... and a senior US central banker has insisted that the cryptocurrency doesn’t present a serious threat to the US dollar’s position.

St. Louis Federal Reserve President James Bullard told CNBC that the dollar’s status as the world’s reserve currency was safe:

“I just think for Fed policy, it’s going to be a dollar economy as far as the eye can see — a dollar global economy really as far as the eye can see — and whether the gold price goes up or down, or the bitcoin price goes up or down, doesn’t really affect that.

Bullard also compared the rise of cryptocurrencies to the various banknotes issued by different lenders as private money in pre-Civil war times.

“You don’t want to go to a non-uniform currency where you’re walking into Starbucks and maybe you’ll pay with Ethereum, maybe you’ll pay with Ripple, maybe you’ll pay with bitcoin, maybe you’ll pay with a dollar. That isn’t how we do this. We have a uniform currency that came in at the Civil War time.”

More here.

It’s also been an exciting day for Italian government bonds.

Rome sold debt at near record-low interest rates today, as investors flocked to the first bond auction since former European Central Bank chief Mario Draghi became prime minister.

The surge in demand meant that Italy could sell €14bn of bonds at some of the lowest borrowing costs on record.

Reuters has the details:

Rome is set to raise a total of €14bn ($17bn) from the sale of a 10-year nominal bond and a 30-year inflation-linked note, one of the banks managing the issue said, adding demand had totalled more than €82bn.

The final size of the order book is well below the record €134bn in demand the two bonds had initially attracted, with many investors dropping out after Italy cut the return on the issues.

Draghi is due to address Italian MPs tomorrow, and lay out his economic plans.

Bitcoin has now slipped back down to $48,400 - only slightly up on the day.

Fawad Razaqzada, market analyst with ThinkMarkets, reckons some investors will be taking profits, as the $50k milestone had been seen as a key target.

Going forward, if Bitcoin finds itself holding above $50K in the days ahead, then we could see renewed bullish momentum come into play and drive prices towards $55K next. There are no obvious technical levels to watch on the upside, except the big milestones like 55K, $60K etc.

Bitcoin remains fundamentally supported because of growing demand as major companies warm towards cryptocurrencies. So, we may not see the repeat of the late 2017-style sell-off. Bitcoin has become a lot more stable and although it will dip here and there, it is unlikely to lose half of its value like it repeatedly did in the past. But in so far as the short-term is concerned, Bitcoin will need to hold its own above the $50K to keep the bullish momentum alive, otherwise a short-term correction could be on the cards.

The US stock market has also handed back its early gains.

The Dow is now flat, while the S&P 500 is down 0.2% and the tech-focused Nasdaq has dipped by 0.6%.

Having surged over $50,000, bitcoin has slipped back a little - currently trading around the $49,000 mark.

Russ Mould, investment director of AJ Bell, says bitcoin’s longer-term prospects depend on whether more people embrace the cryptocurrency:

The more people that adapt it and use it as money, then the greater the chances of it perhaps being taken on board as a mainstream currency.

“That would feed further speculative interest.”

Elon Musk’s move into bitcoin has been pretty successful so far....

But Tesla’s bitcoin purchase is also controversial. Experts in corporate treasury management argue that companies should invest spare funds in low-risk assets (such as short-dated, safe-haven bonds), or just leave it as cash on the balance sheet.

Jerry Klein, a managing director at Treasury Partners, told the FT last week:

“I don’t think there is a case to be made for investing corporate cash in a risky asset like bitcoin, where they could experience significant declines.”

City Index also point to the rising number of investors showing interest in bitcoin, saying:

The latest surge in Bitcoin comes after Tesla announced that it was investing $1.5 billion in it.

However, Tesla isn’t the only company to begin jumping into the cryptocurrency pool. BNY Mellon is developing custody ability, as they are expecting Bitcoin to be used as payment in the future. Mastercard said they are planning to accept transactions in Bitcoin. Morgan Stanley is considering whether to set up a unit to delve into the space.

Even the city of Miami said they are willing to accept partial tax payments and other government payments in the form of Bitcoin. With all this interest on the commercial size, many investors see opportunities to own Bitcoin at current levels.

But...they also warn that the crypto market has been highly volatile:

Can Bitcoin continue higher? Anything is possible. As more firms on the commercial side become interested in diversifying into the cryptocurrency space, it will add to the excitement surrounding Bitcoin. However, traders may want to tread lightly in the space given the extremely volatility cryptocurrencies have seen over the last few months.

Enterprise software maker Salesforce.com is the top riser on the Dow Jones industrial average, up 3%, followed by oil producer Chevron (+2%) and chemicals firm Dow Inc (+1.9%).

Industrial stocks are also rallying, with construction machinery maker Caterpillar up 1.5% and aircraft manufacturer Boeing up 0.9%.

Banks are also benefitting from hopes of an economic recovery, with JP Morgan gaining 1.5% and Goldman Sachs up 1.3%.

We also have encouraging economic news -- manufacturers in the state of New York report that conditions have improved this month.

The New York Fed’s Empire State Manufacturing Survey has risen to 12.1 in February from 3.5 in January, higher than expected.

Factory bosses reported a pick-up in new orders and shipments, and employment levels.

They also flagged up that their input prices have risen, implying that inflationary pressures may be picking up....

One theory behind bitcoin’s rally is that cryptocurrencies can act as ‘digital gold’ - a store of value, rather than a medium of exchange (where bitcoin’s volatility is problematic).

As there around 18m bitcoin in existence, with a maximum of 21m coded into the system, it’s possible to come up with price targets based on bitcoin supplanting bullion.

John Wu, president at blockchain company Ava Labs, argues that bitcoin’s eventual value could be much higher, saying (via Reuters):

“If that narrative [of digital gold] comes to fruition, then the growth potential is off the charts as $50,000 per bitcoin equates to a market cap of roughly $931 billion, which is almost 9% of gold.

“If BTC meets gold’s market cap, then that would be at least $500,000 per bitcoin.”

But.. what about the risk that policymakers decide to regulate cryptoassets? This discussion on CNBC today shows the challenge with valuing bitcoin:

Bank of New York Mellon, the US’s oldest bank, also gave bitcoin a boost last week, when it announced it would hold, transfer and issue bitcoin and other cryptocurrencies on behalf of its asset-management clients.

The move was seen as an important move towards Wall Street’s acceptance of bitcoin. It means digital currencies would pass through the same financial network which BNY Mellon uses for traditional assets like shares and bonds (the Wall Street Journal has more details).

Simon Peters, cryptoasset analyst at multi-asset investment platform eToro, argues that such moves will push bitcoin higher:

“Bitcoin’s incredible rise this year shows no sign of abating. This latest landmark shows how it now has to be considered a mainstream investment asset.

“The fact that major multi-national corporations, from BNY Mellon to Mastercard, are queuing up to lend support to bitcoin demonstrates the clout it now holds. Its buying power is only going to become greater as more big names jump on board.

“Ultimately, bitcoin is disrupting the status quo, and capitalising on the waning power of the dollar. As retail investors look to hedge against inflation, and institutions look for avenues to help drive growth, there’s no reason why $70,000 can’t soon be the new normal. Although, realistically, the cryptoasset could aim higher based on its impressive 2021 performance thus far.”

Sushil Kuner, principal associate at law firm Gowling WLG, flags up that policymakers are concerned about the use of cryptocurrencies (which are pseudonymous).

It will be interesting to see how companies respond to global anti-money laundering regulatory regimes when they have ambitions to accept Bitcoin as a form of payment.

Cryptoassets have long been criticised for facilitating financial crime including money laundering and fraud.

Last month, European Central Bank president Christine Lagarde called for global regulation of Bitcoin, saying it was a “highly speculative asset, which has conducted some funny business and some interesting and totally reprehensible money laundering activity,”

Here’s Reuters take on bitcoin’s surge:

Bitcoin rose above $50,000 on Tuesday to a new record high, building on a rally fuelled by signs that the world’s biggest cryptocurrency is gaining acceptance amongst mainstream investors.

Bitcoin hit a new high of $50,602, and was last up 5% at $50,300. It has risen around 72% so far this year, with most of the gains coming after electric carmaker Tesla said it had bought $1.5 billion in bitcoin.

It also said it would accept the currency as payment.

But Tesla was only the latest in a string of large investments that have vaulted bitcoin from the fringes of finance to company balance sheets and Wall Street dealing desks, as U.S. firms and traditional money managers have started to buy a lot of it.

Associated Press have a pithy take too:

Bitcoin’s rally over the last six months is quite something.

Back in mid-August it was trading around $12,000, before accelerating through the autumn, hitting $20k for the first time in December.

Since then it’s more than doubled, and has been on a tear this month:

Some institutional investors have been taking bitcoin seriously over this time - including investment manager Ruffer, which took a position in November.

Ruffer said it was a defensive move to protect against currency devaluations, explaining in December that:

We see this as a small but potent insurance policy against the continuing devaluation of the world’s major currencies. Bitcoin diversifies the company’s (much larger) investments in gold and inflation-linked bonds, and acts as a hedge to some of the monetary and market risks that we see’

Virgin Wines is to float on the London Stock Exchange next month with a valuation of about £100m as the Covid-19 pandemic increases demand for its home delivery business model.

The company, bought out of Sir Richard Branson’s Virgin group in 2005, mostly sells wine through its WineBank and Wine Plan subscription schemes, but also on a pay-as-you-go basis. It has 169,000 active customers, of which 147,000 are members of its subscription schemes.

The company has benefited as people have been spending far more time at home during the pandemic, and pubs and bars have been shut during lockdowns. It said customers were spending more to buy high quality wine. The off-trade market for wine specialists was estimated to be worth £2.4bn last year.

Back in the City, the early rally has rather fizzled out.

The FTSE 100 has dropped back from its one-month high, now down 4 points at 6751.

Mining giants are still up following this morning’s results from BHP Billiton (+1.8%) and Glencore (+3.3%), along with jet engine maker Rolls-Royce (+2.3%) and HSBC (+1.8%).

But UK-focused companies are dipping back after Monday’s rally, with catering business Compass (-2.6%), retail chain JD Sports (-2.2%), and DIY group Kingfisher (-1.8%) among the fallers.

The Financial Times have an interesting story this morning - that China is considering limited exports of rare earth minerals to the US.

That could be a significant move, as such materials are essential for certain electronics - including green technology and military equipment - and much of the production comes from China.

The FT reports:

China is exploring limiting the export of rare earth minerals that are crucial for the manufacture of American F-35 fighter jets and other sophisticated weaponry, according to people involved in a government consultation.

The Ministry of Industry and Information Technology last month proposed draft controls on the production and export of 17 rare earth minerals in China, which controls about 80 per cent of global supply. Industry executives said government officials had asked them how badly companies in the US and Europe, including defence contractors, would be affected if China restricted rare earth exports during a bilateral dispute.

“The government wants to know if the US may have trouble making F-35 fighter jets if China imposes an export ban,” said a Chinese government adviser who asked not to be identified. Industry executives added that Beijing wanted to better understand how quickly the US could secure alternative sources of rare earths and increase its own production capacity.

Cryptocurrency bitcoin struck a fresh record high earlier this morning, touching $49,972 for the first time before dipping back (it’s currently trading around $48,800).

The eurozone shrank slightly less than first thought at the end of 2020, new data shows, but it still faces a double-dip recession.

Eurozone GDP shrank by 0.6% in the October-December quarter, statistics body Eurostat has reported.

That’s better than the first estimate of a 0.7% contraction. But as many economists forecast that GDP will also shrink in the current quarter, the eurozone is still in double-dip territory.

For 2020, GDP shrank 5%, again slightly better than the 5.1% first reported.

In contrast, the UK economy grew by 1% in October-December - but shrank by 9.9% during last year.

Eurostat also reports that employment picked up in the last quarter, but is still around 2% lower than a year ago, before the pandemic.

Charles Bond, natural resources partner at law firm Gowling WLG, says the record interim dividend at BHP Billiton, and the restored dividend at Glencore, are part of a developing trend.

It reflects the strong growth in the commodity markets being fuelled by new infrastructure and the energy transition as we move away from Covid.

In other mining news, BHP Billiton has announced a record $5.1bn interim dividend as half-year profits hit a seven-year high on the back of surging prices for iron ore.

The world’s largest miner hiked its interim dividend to $1.01 a share, up from $0.65 a year ago, as strong demand for iron ore cushioned the impact of the pandemic.

My colleague Ben Butler explains:

BHP’s half-year profit fell to US$3.87bn compared to the same period in 2019, driven down mostly by a total of US$2.2bn in exceptional items that included slashing the value of the thermal coal assets and US$200m of covid-related costs.

But profits from its operating business, which is dominated by iron ore, soared by 17% to US$9.8bn.

The company also warned that a Chinese ban on Australian coal was hurting its Mount Arthur coalmine, which BHP is trying to sell.

Shares in mining group Glencore have jumped 3%, after the group reinstated its dividend this morning.

Outgoing CEO Ivan Glasenberg told shareholders that the company had steered through “recessionary conditions in the first half to a strong price recovery for most commodities in the second”.

Although Glencore made a statutory loss of $1.9bn due to various impairment charges, adjusted earnings rose slightly - with strong growth at its marketing and industrial metals business offsetting the impact of weaker coal prices

This helped the company to trim its debt pile to $15.8bn, down on the near $20bn hit last summer when the company suspended its dividend.

Glencore is also pledging to reach net zero carbon emissions by 2050 (although this doesn’t include selling off its coal mines).

Glasenberg argues that the mining business has an important role to play in moving to a low-carbon economy, as commodities such as copper, nickel, zinc, vanadium and cobalt are used in key green technologies (such as batteries and renewable energy systems).

As the world focuses on the pathway to recovery from Covid-19, it is clear that meeting the goals of the Paris Agreement has taken on even greater urgency.

While innovation and technological advances have transformed how we live and work, the commodities needed to enable this have not. Our commodities are essential in developing all facets of infrastructure needed to deliver the goals of energy and mobility transition.

Hopes of a ‘large and fast-moving’ US stimulus package are driving the global stock market rally, says Stephen Innes, chief global markets strategist at axi.

The real stock market boosting surprise this week may have to do with the quick end to former US President Trump’s impeachment on Saturday as the Democrats didn’t bring forward witnesses, which could have dragged things out for weeks.

The reason for the decision appears to be that the Democrats want to entirely focus on the proposed fiscal stimulus package and not be encumbered by the impeachment process, which was never likely to result in a guilty verdict anyway.

So, I think the market reaction this week is bang on: the probability of a large and fast-moving fiscal package by mid-March has just gone up exponentially.

European stock markets are more muted today, after hitting their highest levels in almost a year on Monday.

The Europe-wide Stoxx 600 is up just 0.1%.

Asia-Pacific markets have had another strong day.

Japan’s Nikkei has hit a fresh 30-year high today, jumping 1.28% or 383 points to close at 30,467 points.

In Hong Kong, the Hang Seng surged by 1.8% as trading resumed after the Lunar New Year break.

Jeffrey Halley of OANDA says:

Although not showing quite the same momentum as yesterday, a combination of dovish central banks, and the ever-present US stimulus and vaccine hopes have kept equity markets in business as usual mode.