Bitcoin has once again taken center stage by hitting an all-time high, trading above the $19,000 mark. This surge, the first in nearly three years, has captured the attention of both seasoned and novice investors alike, raising questions about the driving forces behind Bitcoin’s remarkable ascent.
Bitcoin’s Meteoric Rise in 2020
The digital currency’s meteoric rise has been nothing short of impressive. According to CoinDesk, Bitcoin reached an intraday record of $19,834.93, surpassing the previous high set on December 18, 2017, at $19,783.21. As of December 1, 2020, Bitcoin has nearly tripled in value for the year and soared over 90% since early September, closing at $19,376.18, marking a 6.1% increase.
Macro Factors Fueling Bitcoin’s Rally
Several macroeconomic factors have contributed to Bitcoin’s surge. The Federal Reserve and other central banks injecting trillions into capital markets have created a liquidity influx. Simultaneously, optimism surrounding potential COVID-19 vaccines has bolstered market confidence. In a landscape where safe assets like government bonds yield close to zero, investors are turning to riskier assets for potential high returns. Bitcoin, perceived as one of the riskiest assets, is reaping the benefits.
The Weakened Dollar and Inflation Concerns
Société Générale forex strategist Kit Juckes points out the weakened dollar, significant growth in central bank balance sheets, and lingering questions about inflation as key contributors to Bitcoin’s rise. The cryptocurrency is positioned as a beneficiary of the collapse in real yields, making it an attractive investment avenue for those seeking alternatives.
Surging Trading Volume and Cryptocurrency Boom
Bitcoin’s trading volume has experienced a significant uptick in recent months, surging from $18 billion a day in September to an impressive $50 billion a day. This surge isn’t exclusive to Bitcoin, as other cryptocurrencies like Ether and XRP have also seen substantial gains, with Ether rising by 370% and XRP by more than 234% in 2020.
Diverse Investor Participation
Bitcoin’s rally is driven by a diverse range of investors, from retail enthusiasts to seasoned professionals. Online platforms like Square Inc.’s Cash App, Robinhood, and PayPal have facilitated retail participation, allowing users to seamlessly buy and sell Bitcoin. On the professional side, financial firms such as CME Group Inc. and Intercontinental Exchange Inc. operate derivatives markets, and even traditional giants like Fidelity Investments Inc. have established digital-assets groups for investors.
Bitcoin’s Market Size in Perspective
Despite the attention it commands, Bitcoin remains a relatively small market. The total market value of Bitcoin in circulation is approximately $362 billion, paling in comparison to the $11.9 trillion investment market for gold at the end of 2019, as reported by the World Gold Council.
Bitcoin: The Digital Gold Narrative
Unveiled in 2008 and launched in 2009, Bitcoin was designed to operate as a digital version of cash, free from government or banking control. Its decentralized nature, running on a network of independent computers, ensures security against counterfeiting and prevents unilateral changes to its core features. The capped supply of 21 million bitcoins contributes to its digital gold narrative, with some proponents likening it to the precious metal.
Current Circulation and Future Implications
As of now, approximately 18.5 million bitcoins are in circulation. The predetermined rate of inflation, steadily decreasing with each newly minted bitcoin, gives Bitcoin a unique economic dynamic.
Navigating the Bitcoin Landscape
As Bitcoin continues to make headlines with its remarkable rally, investors and enthusiasts are left wondering about its future trajectory. The cryptocurrency market, while growing, remains dynamic and subject to rapid changes. Whether Bitcoin will sustain its current momentum or face new challenges, only time will tell.
