Bitcoin Price Rally
Bitcoin has been on a major tear over the last few months. First launched in 2009 and now with a market capitalization of over $700 billion, Bitcoin is by far the most dominant cryptocurrency. It was invented as a new type of electronic payment system, built atop an Internet-based computing network, so that no single person, company, or government could control it. Since it functions via a dispersed peer-to-peer network, rather than through a central authority such as a central bank, there is anonymity associated with every transaction, hence the currency can be handily exchanged across clients and nations without distinguishing the individual who holds the bitcoin.
With the bitcoin price adding an eye-watering 40% since the beginning of the year, the question of whether Bitcoin is a medium of exchange or an asset and more precisely, what is its current value and what value will prevail in the future given its characteristics, is quite debatable. The reality of this cryptocurrency’s trading history is so brief, with methods for valuing the asset still largely untested, that nobody really knows for sure what it should be worth presently or in the future. As Bitcoin price generates more buzz each day, it seems almost similar to 2017, when it hit its all-time high of over $20,000, then began its lengthy fall. And even though this meteoric rise in Bitcoin`s Price feels like 2017, it is not quite the same.
First of the myriad of factors for this wild price swing, include more buying from large institutional investors. Fund managers who previously flinched at the token and its barbaric price swings feared they were passing on solid returns and began shifting some cash into the crypto market. Institutional investors have since pushed billions of dollars into the cryptocurrency market. Their inclusion has played an important role in its resurgence through the end of 2020.
Following the risk of economic collapse due to the pandemic, governments around the world eased monetary constraints and in order to support spending and help save the economies, flushed global markets with money.
However, increasing the supply of money erodes its value and leads people to look for inflation-resistant hard assets to hold. The limited supply of 21 million tokens and insulation from geopolitical risky policy decisions saw Bitcoin serve as an alternative to gold and other hedge assets. In such a scenario, Bitcoin has become a hedge against looming inflation and poor returns on other types of assets.
Bitcoin’s rise has also been helped by moves in the space from big financial firms like PayPal and Fidelity. PayPal last year launched a feature that lets its users invest in cryptocurrencies, and is planning to offer crypto payments across its massive network of retailers later this year. PayPal’s support and the influx of institutional funds lend bitcoin new legitimacy and interest among retail investors. The US Office of the Comptroller of the Currency (OCC)also said that central banks can use blockchain networks and stable coins for payments, further validating cryptocurrencies.
After Tesla announced its investment of $1.5 billion in Bitcoin and expects to start accepting the cryptocurrency as a payment for its electric vehicles in the near future, Bitcoin’s price skyrocketed. It went from around $39,400 to an all-time high of over $48,000 in less than a day. With the world’s sixth most valuable company also saying it might buy and hold other digital assets “from time to time or long term”, it must be tempting for other major companies to do likewise. The more the bigger names get involved in the space and the more regulators start writing regulations about it, the more it becomes a mainstream asset.
Bitcoin is transforming from what used to be a contrarian idea or a contrarian trade to a consensus trade. There are many apprehensions and worries swirling around the technology and its capacity to disrupt traditional capital markets. Since Global regulators will no doubt be concerned about a potential volatility spillover from crypto asset prices into traditional financial systems, they may not allow what could briskly amount to effective proxy approval by the back door for companies holding huge proportions of volatile assets on their balance sheets. The future outlook of Cryptocurrencies is still very much debatable. Proponents see the limitless potential, while opponents see nothing but risk.
