YEAR OF BITCOIN
Bitcoin took off in the year 2020
The premier digital asset saw its price climb to all-time highs — closing the year just shy of $30K
It’s time now to put the craziness of 2020 behind us and make a fresh start for 2021 — with renewed hope & vigor. The pandemic has affected the lives of everyone across the globe and apart from the health implications, the biggest impact was seen on economies around the world. None of the financial assets were spared when the pandemic-driven locked down started in March. Since then the financial markets have posted a smart recovery and the one asset that stands out with its gains is the premier digital asset, Bitcoin, posting more than 300% gains for the year (chart above).
After dropping more than 50% in March, BTC started a gradual recovery. But it wasn’t till late October when it started its vertical ascent. From the looks of it, it seems every little pullback since then has seen an acceleration in momentum. As we wind down the year, Bitcoin is closing near its all-time highs — a whisker away from the $30k level.
Although Alt. coins like Ethereum (second-largest crypto) seen handsome gains as well, no other digital asset comes close to the performance of BTC. The grasp of Bitcoin on the general crypto market can be gauged from the fact the current BTC dominance stands around 70%. The third-largest crypto by market cap is the only exception, as the recently announced SEC lawsuit has caused XRP to fall off the cliff.
However, there is a general consensus this time that more fundamental factors behind the exponential growth of Bitcoin — unlike the amateurish euphoria that we witnessed back in 2017. Let’s analyze some of them.
➤ Loose monetary policies — Governments and central banks across the globe began implementing unprecedented fiscal and monetary policy to mitigate the effects of the economic damage caused by the pandemic. The increased supply of fiat currencies caused people to hedge risk with Bitcoin.
➤ Inflation fears — This ultra-easy monetary policy pumped trillions of dollars were pumped into the economy. At the same time, the supply of Bitcoin being released into circulation began to shrink, owing to Bitcoin’s third halving. As Bitcoin thrived to end the year, the Greenback has ended the same near its yearly lows.
➤ Digital Transformation —The pandemic-driven quarantine and lockdowns also accelerated the digital transformation which was already taking shape. As health authorities put measures like physical distancing in place, businesses went virtual and the cashless society thrived.
➤ Ease of trading — By October, PayPal and Venmo rolled out buy, hold and sell services for various cryptocurrencies, making them more accessible to retail users. With more than 350 million PayPal users, cryptos have suddenly have become much more accessible to a large segment.
➤ Institutional interest — And perhaps most important of all is the institutional interest which has skyrocketed this year. 169-Year-Old MassMutual recently invested $100 Million in Bitcoin for its general investment fund. This is in addition to MicroStrategy Inc., and Square Inc., which have recently expanded their investments in the world’s premier digital currency. Other big names including Fidelity, BlackRock & Citigroup have followed suit.
I will leave you with a holistic picture of Bitcoin for the past four years to visualize how BTC has performed in the long-run (Figure 2). The digital asset has matured as a financial asset as more institutional players see it as a store of value and also as a hedge against risk. Millions of dollars of investment from them vouch for that narrative.
Just like any other financial asset, a correction is always healthy. For Bitcoin being in unchartered territory right now, the sky is the limit. For those of you who are interested in the technical side of things here is the 2020 Year-in-Review Special by Bitcoin Optech, summarizing the latest developments in BTC.