- In less than a month, Bitcoin has more than doubled. Analysts and investors are shocked by this and worried about possible market bubbles.
- In recent months, the token rally has been very different in many ways from the surge three years ago, as buyers now range from casual day traders to fund managers handling billions of dollars in assets.
- Loose monetary conditions and trillions of dollars in fiscal stimulus have led some investors to view tokens as a new inflation hedge.
- The following details the factors driving Bitcoin̵
- Visit the Business Insider homepage for more stories.
In 2017, it took nearly 11 years for Bitcoin to reach $20,000 per coin for the first time. Only 22 days later, the world’s most popular cryptocurrency surged another $20,000, and its momentum remains strong so far.
Bitcoin’s rapid rebound in 2017 was quickly offset by the sell-off, which wiped out most of its rapid earnings. But this time there is no such trend. Experts said that multiple factors have jointly promoted the soaring of the token in 2020 and will continue to promote the development of Bitcoin in the new year.
The following details the three reasons behind the soaring price of Bitcoin and discusses why Bitcoin is unlikely to suffer a crash similar to two years ago.
(1) Fear of missing out
Although enthusiastic retail investors drove Bitcoin’s 2017 rebound, public companies triggered the token’s latest climb. The chairman of the Bitcoin Association, Jimmy Nguyen, told The Insider that MicroStrategy started a chain reaction when it bought $425 million worth of Bitcoin in August and September. This move opened the door for other listed companies to consider Bitcoin as a viable reserve asset.
Square acquired it in October for its own $50 million. Nevertheless, it wasn’t until PayPal adopted Bitcoin that prices began to soar. The company announced on October 21 that it will allow hundreds of millions of users to buy, sell and hold Bitcoin. The token jumped to its highest level since July 2019, as investors saw its adoption as a key step forward for the widespread use of Bitcoin.
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Nguyen said: “People know it is a reserve asset, know that the supply of Bitcoin is limited, and say,’Well, I hope I can buy it before the price is too high.”
The subsequent rise in the price of Bitcoin subsequently attracted competition from institutional investors. Fund managers who were dissatisfied with tokens and their dramatic price fluctuations were worried that they would miss out due to high returns and began to transfer some cash to cryptocurrencies.
Since then, institutional investors have pushed billions of dollars into the cryptocurrency market. Douglas Borthwick, chief marketing officer of INX, a digital asset trading platform, stated that their participation has played a major role in the rapid rise of the token before the end of 2020.
Boswick told The Insider: “If you don’t have a good performing product in your portfolio, your performance will be poor. People will leave your fund.” “Your position is getting bigger and bigger, and it’s in circulation. There are fewer and fewer bitcoins.”
(2) Demand for inflation hedge
Bitcoin seems to be completely out of touch with the coronavirus pandemic at first, but the consequences of the health crisis have played a key role in supporting the price of the token. Governments around the world have passed trillions of dollars worth of fiscal stimulus plans to make up for the economic losses of this epidemic.
Nikolaos Panigirtzoglou, an analyst at JPMorgan, said in November that the influx of fresh currency and loose monetary conditions have promoted Bitcoin as a hedge against inflation. The limited supply of 21 million tokens and being unaffected by policy decisions allow the token to replace gold and other hedging assets.
Boswick said: “Money printing has meant that everyone in the world is looking for hard assets that can be used for investment, and this has not increased on the supply side.”
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(3) Increase legality
The warm-up of corporate and institutional investors to Bitcoin has made this asset legal, which has recently been known for its dim use rather than its investment potential. Borthwick said that at the token’s 2017 rally, those who are not too familiar with cryptocurrencies associated it with “evil activity.”
Borthwick added that the adoption of PayPal and the influx of institutional funds have brought new legitimacy and interest to retail investors. Just yesterday, the U.S. Currency Audit Office stated that the National Bank can use blockchain networks and stablecoins for payment, thereby further legalizing digital currencies.
Boswick said: “More and more well-known companies are involved in this field, and more and more regulatory agencies have begun to formulate regulations on this, and it has become a mainstream asset.”
By the end of last year, the curiosity of everyday investors surged. According to Google Trends data, from early October to early January, global search interest in Bitcoin more than tripled. Celebrities from actress Maisie Williams to rapper Meek Mill have all tweeted about entering the cryptocurrency market. Boswick said that in just a few months, the crowd who invested cash in Bitcoin has evolved from fund managers and crypto enthusiasts to almost everyone.
He added: “I am absolutely eager to invest in the field of cryptocurrency.” “It’s no longer friends, family and old friends from college.”
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What is the future of hot cryptocurrency
The rapid doubling of Bitcoin has naturally prompted some investors to think that the token is a bubble. JPMorgan Chase said on Monday that the coin’s rally will “push it into more challenging areas” and that the continued rise at the current rate may “prove unsustainable”.
Nguyen said the market is likely to be “leaning toward some kind of adjustment,” but it is unlikely to be similar to the situation three years ago. Institutional investors are prepared to maintain their Bitcoin positions because it is worried about selling prematurely and missing additional returns.
Borthwick said that the growing interest in blockchain and cryptocurrencies has also protected prices from returning to recent lows.
He said: “What you are talking about here is that everyone in the world adopts something in a short period of time.” “When you talk about a new technology, I think there has never been something like the top.”
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