Bitcoin has again seen an unprecedented rise this year, Bitcoin price surge by 300% in 2021 giving investors better returns than other mainstream traditional options
Continuing its upward rally, the world’s most popular cryptocurrency, the Bitcoin price surged and touched the record high of $40000 on the 9th of January 2021, and setting a new milestone.
The cryptocurrency price has doubled in just 17 days since it achieved the psychological milestone of $20,000.
The latest gains top an eye-popping rally for the Crypto asset in 2020.
Experts are predicting the Bitcoin price can rise to more than $50000 in the first quarter of 2021.
With the meteoric surge in the Bitcoin price, Bitcoin’s market value has now exceeded $1 Trillion. This is way more than the market caps of Visa, Walmart, Amazon & other major publicly traded companies
There are multiple reasons behind the recent Bitcoin price surge which we are going to discuss in the article. We will also analyze whether this growth in the Bitcoin price is sustainable and how much it can increase in the near future.
Bitcoin price surge – Mass investment in Bitcoin by large financial institutions
There are a multitude of reasons behind the recent surge in the Bitcoin’s price
But one of the major reasons behind the increase in Bitcoin price is Investments from large financial institutions like Micro Strategy, Square. They have invested $425 million and $50 million respectively in Bitcoin.
Another major investment in Bitcoin comes from hedge fund One River, which has reportedly bought more than $600 million worth of Bitcoin and Ethereum, and on top of that company’s CEO, Eric Peters has committed to buy bitcoin and Ethereum worth $1 Billion in the coming days.
It has also led to an increase in the price of Ethereum which has doubled in the past few days.
The mind behind major financial institutions has publicly backed Bitcoin. Which has also been accompanied by very public support for Bitcoin from other parts of the investment world like JP Morgan and other large hedge fund and investment firms.
Major investment firms like Grayscale Investments, an asset management company, has also started providing custodial services for large Bitcoin investors.
The Northern Trust and SC Ventures, the innovation and ventures arm of Standard Chartered, launched a cryptocurrency custodial service named Zodiac Custody, for institutional investors.
These firms have also bought hundreds of Bitcoins in the last few months.
In addition, American Express one of the largest financial corporations in the world invested in FalconX, (an advanced margin cryptocurrency trading platform)
These events have resulted in the mass adoption of bitcoin by the major institutional investors as well as the average investors.
The Dogecoin price has increased 125% above 1 cent per coin after a surprise endorsement from an Australian adult film star Angela White.
Covid-19 Effect – Inflation and a decrease in the purchasing power of the US dollar
Most analysts believe that Covid-19 is another major reason behind the increase in the Bitcoin price. Many Cryptocurrency investors have said that the pandemic-hit year offered a perfect environment for the cryptocurrency.
The fact that the US government has pumped a $2.4 Trillion stimulus package into the US Economy has resulted in inflation which has lowered the purchasing power of USD. And subsequently, the global economy is directly or indirectly dependent on the US dollar.
To shield against this rising inflation, most investors are avoiding the dollar and looking in assets that historically have held value or have even appreciated in value.
Normally these assets are like precious metals, stocks in sectors that are generally less volatile, and more recently, Bitcoin.
The interest rates on traditional investments that had also hit rock bottom during the year also helped in the increase of the Bitcoin price as more investors have invested their money in the cryptocurrency.
Bitcoin halving – Increase in demand and shortage of supply
Bitcoin halving is also another reason behind the recent increase in the Bitcoin price. The Bitcoin halving happens every four years and cuts the number of Bitcoins miners receive for adding new blocks to the Bitcoin blockchain in half.
It means Halving cuts the rate at which new Bitcoin is released into circulation in half.
The recent bitcoin halving occurs in May 2020.
Hence with the Bitcoin halving in May, this stream of Bitcoin supply has halved, meaning that fewer Bitcoin is put up for sale by miners. This can contribute to a shortage of supply and therefore to an increase in the Bitcoin price
This is basic economics, If demand stays the same, but the supply decreases, this always increases the commodity price.
PayPal and cryptocurrency
Another major reason behind the recent growth in the bitcoin price is the acceptance of cryptocurrency by PayPal (the international payments giant).
PayPal has decided to allow buying and selling Bitcoin directly on its platform itself. PayPal has also confirmed that all of its customers nearly 350 million customers could now access Bitcoin along four major cryptocurrencies (Bitcoin, Bitcoin Cash, Ethereum, and Litecoin)
PayPal also has plans to bring this feature to Venmo (Venmo has more than 40 million active accounts, making the accessibility to Bitcoin and other cryptocurrencies even easier).
Other than PayPal, Square, and CashApp, now also accepts cryptocurrencies as payment methods making the ability to buy and sell Bitcoin even wider and a lot easier.
PayPal will also be making it possible for its users to spend their crypto with their more than 28 million merchants that accept PayPal.
It is reported that PayPal has been buying 70% of newly mined Bitcoin.
Hence, As financial world giants like MicroStrategy, Square, and Grayscale substantial investment have contributed to perceptions of Bitcoin as a legitimate asset.
Bitcoin price prediction – Where does bitcoin price go from here?
It may be possible that the price of the Bitcoin drops or get stagnant in the coming days. Because of its high volatility and previous trends.
Experts believed that governments across the world can regulate cryptocurrency because of its recent surge in price.
The Indian government is also looking to charge 18% GST over Bitcoin and Cryptocurrency transactions. Which can bring 7200 Crore INR ($92 Million) in tax on the margins made in the trading of Bitcoins.
However, there are two major characteristics of Bitcoin which are largely responsible for the increase in the price of bitcoin.
Firstly, Bitcoin is a finite asset it means there is only 21 million Bitcoin that will ever exist. This makes bitcoin more scarce than other investment assets. Other safe-heaven assets are not 100% finite and in some cases, can be manufactured synthetically.
Bitcoin halving is also responsible for the consistent rise in the price of the bitcoin. Halving cuts the rate at which new Bitcoin is released into circulation in half.
Hence, Halving reduces the Bitcoin’s rate of inflation by half, and subsequently, its stock-to-flow ratio is doubled each halving.
Halving occurs every four years until all Bitcoin is mined, released, and in circulation.
At the time of writing the article, there are 18.59 million in circulation.
So far, Bitcoin’s price has followed its stock-to-flow ratio very closely and if it were to continue on this trajectory Bitcoin’s price can be $100000 at the end of this year.
Another reason to be optimistic about the continued future growth of bitcoin that the brightest mind behind major financial institutions like JP Morgan is now publicly backing bitcoin in contrast to their previous statement that labeled it ‘fraud’ in 2017.
Hence, forecasting Bitcoin as a future proof legitimate investment asset and a viable alternative to Gold as a hedge for investors.
Strategists at the American megabank believe Bitcoin has a very good chance to hit $146,000 in future years. Drawing parallels between Bitcoin (BTC) and Golds.
They have forecasted a possible scenario in which Bitcoin can seriously replace Gold’s role as a hedge for investors.
On Jan 5, 2021, a Bloomberg report cited a note of the JP Morgan Chase strategists led by Nikolaos Panigirtzoglou, in which they sketched out a path to the total private sector investment in Bitcoin coming to equal the value that is currently invested in gold via either exchange-traded funds or bars and coins.
Frequently asked questions
Which other altcoins price has increased most?
Ethereum coin price has increased by 100% and Dogecoin Price has increased by 400% in the last 14 days.
Does Bitcoin price will keep increasing in future
Yes, Bitcoin price can surge to $50000 in the first quarter of 2021. The global economy will take time to recover after the pandemic. And commitments made by large scale institutions example hedge fund One River to make $1 Billion worth of investment can lead to a further increase in the bitcoin price