- Bitcoin It more than doubled in less than a month, leaving analysts and investors dazed and anxious about a potential market bubble.
- In many ways, the token’s rally in recent months is fundamentally different from the rally we saw three years ago, with buyers now ranging from regular traders to fund managers dealing with billions of dollars in assets.
- Easy monetary conditions and trillions of dollars in fiscal stimulus have led some investors to view the token as a new hedge against inflation.
- In detail below, the factors that are driving Bitcoin soaring, and why experts don’t think the cryptocurrency will collapse like it did in 2017.
- Visit Business Insider’s homepage for more stories.
It took almost 11 years Bitcoin Reaching $ 20,000 per coin for the first time in 2017. After just 22 days, the world’s most popular cryptocurrency rose another $ 20,000, and its momentum is still strong so far.
Bitcoin’s rapid rise again in 2017 was followed by a quick sell-off that quickly erased the bulk of the gains gained. But no such trend has emerged this time, and experts say that a combination of factors have fueled the token boom until 2020 and will continue to boost Bitcoin in the new year.
In detail below are the three reasons behind the rise in Bitcoin prices, and a discussion of why it is unlikely to experience a crash similar to what we saw two years ago.
(1) Fear of missing out
While enthusiastic retail investors supported Bitcoin’s 2017 rally, public companies launched the latest rise in the token. MicroStrategy Jimmy Nguyen, president of the Bitcoin Association, told Insider that he started a chain reaction when it bought $ 425 million worth of Bitcoin in August and September. The move opened the door for other public companies to offer Bitcoin as a viable reserve asset.
Field He followed her in October alone $ 50 million to buy. However, that wasn’t even the case PayPal It adopted Bitcoin, which started the price rise. The company announced on October 21 that it would allow hundreds of millions of its users to buy, sell and possess Bitcoin. The token jumped to its highest level since July 2019 as investors saw the adoption as a major step forward for Bitcoin’s widespread use.
Read more: The chief information officer for a $ 500 million crypto asset manager breaks down 5 ways to evaluate bitcoin and decide whether to own it after the $ 40K digital asset breaks out for the first time.
“People see moving into it as a reserve asset, knowing that there is a limited supply of bitcoin, and they say, ‘Well, I want a piece of it before it gets too high,’” Nguyen said.
The subsequent rise in Bitcoin prices pushed institutional investors into the fray. Fund managers who previously refused to use the token and its violent price fluctuations feared that they had lost strong returns and began converting some funds into the cryptocurrency.
Institutional investors have since pushed billions of dollars into the cryptocurrency market. Their participation played the biggest role in the token’s meteoric rise through the end of 2020, according to Douglas Borthwick, chief marketing officer of digital asset trading platform INX.
“If you don’t have something in your portfolio that is working well, it’s not going to do well. People will leave your box,” Porthwick told Insider. “You have larger and larger position sizes chasing smaller and smaller numbers of Bitcoin in circulation.”
(2) The demand for inflation hedges
Bitcoin may initially seem completely separate from the Coronavirus pandemic, but the health implications of the crisis have played an important role in supporting token prices. Governments around the world have passed on several trillions of dollars in financial incentives to weather the economic damage of the epidemic.
The influx of new currency and easy monetary conditions bolstered Bitcoin as a hedge against inflation. JP Morgan Analyst Nikolaos Banegertzoglu said in November. The limited supply of 21 million tokens and isolation from policy decisions saw the token act as a substitute for gold and other hedging assets.
“The printing of money meant that everyone in the world was looking for hard assets to invest in, which is something that is not rising in terms of supply,” Porthwick said.
Read more: A growth fund manager who has defeated 96% of his peers over the past five years shares 6 stocks he sees as “dominating its space” over the next five to ten years – including 2 he believes can grow 100%
(3) Increasing legitimacy
Corporations and institutional investors converting to Bitcoin have given legitimacy to an asset that has recently been known for its obscure uses over its investment potential. During the 2017 tokens march, Porthwick said, he linked those less familiar with cryptocurrencies to “nefarious activities.”
Porthwick added that the adoption of PayPal and the flow of institutional funds are lending Bitcoin new legitimacy and interest among retail investors. And just yesterday, the Office of the US Currency Controller said to national banks Blockchain networks and stablecoins can be used For payments, to further legalize digital currencies.
“The more big names getting involved in the space, and the more regulators start writing their bylaws, the more fundamental it becomes,” said Porthwick.
Curiosity exploded among ordinary investors until the end of last year. Global interest in Bitcoin searches more than tripled from early October to early January, according to Google Trends data. Celebrities range from Actress Maisie Williams to me Rapper Mick Mill He tweeted about entering the cryptocurrency market. In a matter of months, Porthwick said, the crowds paying bitcoins had evolved from fund managers and cryptocurrency fanatics to almost everyone else.
He added, “There is an absolute rush on the ground to invest in the crypto space.” “Old friends, family and friends are no longer from college.”
What is the future for cryptocurrency
Bitcoin’s rapid doubling down has naturally led some investors to view the token as a bubble. JPMorgan said Monday that the token’s rally is moving it into “more challenging territory”, and that a sustained rally at its current pace is likely to “prove unsustainable.”
Nguyen said the market may be “subject to some kind of correction”, but is unlikely to be similar to what we saw three years ago. Institutional investors are preparing to maintain their Bitcoin positions for fear of early selling and losing additional returns.
Porthwick said the growing interest in blockchain and cryptocurrencies is also protecting prices from returning to recent lows.
“What you are talking about here is the adoption of something by everyone in the world within a very short period of time,” he said. “When you talk about a new technology, I don’t think there is such a thing as the top.”
Now read more market coverage from Markets Insider and Business Insider: