Bitcoin achieved a remarkable rise in 2020 in spite of many things that would normally make investors wary, including US-China tensions, Brexit and, of course, an international pandemic. From a year-low on the daily charts of US$4,748 (£3,490) in the middle of March as pandemic fears took hold, bitcoin rose to just below US$30,000 by the end of the year. Since then it has climbed to all-time highs above US$38,000, making headlines day after day and driving up the prices of other cryptocurrencies at the same time. So what has driven this huge price appreciation and is it different to the bubble of 2017?
More ways of using bitcoin
Bitcoin has also been backed by a few large consumer-facing payment names. PayPal now allows customers to buy, hold and sell bitcoin directly from their PayPal accounts. Rival digital payment firm Square reported in November that more of its Cash App users are buying the digital currency, and buying more on average than before. The number of vendors accepting bitcoin as a form of payment is growing rapidly. Possibly most importantly, Visa has been warming to bitcoin. In October it announced a handful of bitcoin-related credit and debit cards with leading crypto exchange Coinbase. With more and more ways of using bitcoin, it should mean that more people will want to hold it.
Big names and central banks
Big names such as billionaire investor Paul Tudor Jones and insurance giant MassMutual have invested heavily, while even former naysayers like JP Morgan now say that bitcoin could have a bright future. This all helps to increase trust in the cryptocurrency and indicates that it is becoming more mainstream.
Even central banks are embracing cryptocurrencies. Russia, China, Canada, the EU and many others are either already working on central bank digital currencies (CBDCs) for their countries or publishing white papers detailing their intentions to do so. The maximum number of bitcoin that will ever exist is set at 21 million (unless the protocol changes), and there are already about 18.5 million in circulation. The supply of new coins is also slowing down because the reward that bitcoin miners receive for verifying transactions on the blockchain halves roughly every four years – it fell from BTC12.5 to BTC6.25 last May. This scarcity is comparable to that of precious metals.
What’s in the future?
So what is the future of significant currency? There are plenty of very enthusiastic forecasts for the bitcoin price in 2021. Tyler and Cameron Winklevoss, the founders of leading crypto exchange Gemini, believe bitcoin will eventually hit US$500,000 per coin, while a Citigroup analyst suggests a price of US$318,000 by December 2021.
It would seem like now is the best time more than ever to invest in bitcoin or even hold onto investments made already for that sweet payday. Just bear in mind it is not without its risks what shall rise can often fall.