UPDATE 4-Bitcoin soars toward $50K as Tesla takes it mainstream

* Bitcoin rally falters after hitting record $48,216

* Tesla's investment drives YTD gains to 67%

* Excessive volatility still a worry for serious investors(Adds comment, updates prices)

By Tom Westbrook, Thyagaraju Adinarayan and GertrudeChavez-Dreyfuss

NEW YORK/LONDON, Feb 9 (Reuters) - Bitcoin powered to arecord high on Tuesday, approaching the $50,000 mark, basking inthe afterglow of Elon Musk-led Tesla's investment in thecryptocurrency that had investors believing it may become amainstream asset class.

The most popular cryptocurrency has gained 1,150%since its March 2020 lows, as institutional investors searchedfor alternative investments and retail traders rode the wave. Ittraded at a few hundred dollars only five years earlier.Glassnode, which provides insight on blockchain data, said inits latest report that bitcoin's limited supply suggestedfurther gains for the virtual asset.

Bitcoin's liquid supply is continuing to decrease, asinvestors increasingly acquire and "hodl" the asset for the longterm. "Hodl" is crypto slang for the act of an investor holdingthe asset instead of selling it.

Currently, around 78% of issued bitcoin are either lost orbeing "hodled." This leaves less than four million bitcoins tobe shared among future market entrants - including largeinstitutional investors such as PayPal, Square, S&P 500companies, and exchange traded funds, Glassnode said.

On Monday, bitcoin leapt 20% after Tesla announcedit had a $1.5 billion investment and that it would eventuallytake the cryptocurrency as payment for its cars. That was itslargest daily rise in more than three years.

It climbed to a peak of $48,216.09 - almost enough to buyone of the best-selling Tesla vehicles, the Tesla Model Y SUV.Rival cryptocurrency ethereum struck a record high of$1,825.36 on Tuesday.

Musk's foreseeing acceptance of the currency as payment forTesla cars has analysts reckoning this is a large shift ascompanies and big investment houses follow small traders intothe asset.

Marc Chandler, chief market strategist at Bannockburn GlobalForex, remains unconvinced and said bitcoin remains aspeculative vehicle.

"The fact that it draws some institutional investors or evensome companies does not change this fact. Bitcoin has noearnings stream that can be modeled," said Chandler. "It has nobreak-up or replacement cost. There is no intrinsic value. Theyhave no use-value the way economists understand it."

Bitcoin's volatility has also been a hindrance for someserious investors and a sticking point in using it fortransactions. Realized volatility, or daily price swingsmeasured in terms of closing prices for bitcoin over the past 90days, was at 72%, compared with 16% for the S&P 500 stocks indexand 6% for the euro currency.

What's more, with bitcoin's value tripling in the past threemonths, analysts raised questions over how its volatility wouldaffect someone buying a Tesla car in bitcoin.

"Unless the price of bitcoin stabilizes, either bitcoin'sprice falls drastically and you end up having won a Tesla in alottery, or its price triples and you end up paying your Teslafar too expensive," said Ipek Ozkardeskaya, senior analyst atSwissquote Bank.

"EARLIEST PHASES"

Billionaire Musk has long been a cryptocurrency fan - he hastalked them up online - but Tesla's hard currency investmentcame as a surprise that has put a rocket under the sector.

"Right now, it still seems like a bit of a leisurelypursuit, to acquire bitcoin. But I think by the end of the year,with the current rate of institutional flow inbound, it willbecome clear that this is a once-in-a-lifetime landgrab," saidJehan Chu, founder and managing partner at Kenetic, whichinvests in blockchain-related companies.

Still, in BofA's January fund manager survey, bitcoin toppedthe list of "most crowded" trades. Another survey, by DeutscheBank, warned of price bubbles in the cryptocurrency.

Bitcoin is already up 67% this year, on top of a 300% rallylast year, as investors search for alternatives to the dollarbecause of the U.S. Federal Reserve's 0% interest rates. Thedollar slid against most currencies on Tuesday.

In the ongoing digital wave, central bankers and regulators,particularly in China, are also starting to embrace issuingtheir own digital currencies for everyday use, in a major breakfrom the conventional workings of global finance.

Beijing will issue 10 million yuan ($1.55 million) worth ofdigital currency to residents that can be used during the LunarNew Year holiday starting on Thursday, domestic media reported.

However, Vitor Constancio, former vice-president of theEuropean Central Bank, wrote on Twitter that policymakers shouldfocus on regulating cryptocurrencies and develop digitalcurrencies only if they will help banks in their role ofenabling credit creation.

The Tesla news-led rally stretched beyond bitcoin. Shares ofcompanies that provide trading platforms for bitcoin and thetechnology to "mine" the cryptocurrency surged in China, SouthKorea, and Australia, and big computer-chip making companiessuch as SK Hynix also rose.

MicroStrategy Inc., a business intelligencesoftware firm and a bitcoin buyer, has climbed 215% so far thisyear, after posting gains of 172% in 2020.

Even dogecoin, a cryptocurrency with a dog as its symbol,has seen its value turbocharged after Musk mentioned it onTwitter. It has jumped 13% in the past day, according toCoinMarketCap.

"It's really become popular culture and mainstream," Chusaid. "People are no longer asking 'Why should I invest inbitcoin?' They're having to defend why they're not."($1 = 6.4493 Chinese yuan)

(Reporting by Gertrude Chavez-Dreyfuss; Additional reporting byTom Westbrook in Singapore, Thyagaraju Adinarayan in London, andStanley White in Singapore; Editing by Dan Grebler)