Why does Bitcoin price skyrocket?



The price of Bitcoin is on the rise to a record in 2017. Experts say that the price of digital currency in 2020 is more sustainable than three years ago.

Bitcoin digital currency is being traded above $18,000 - a record high in the past 2 years.  From the beginning of the year until now, Bitcoin has appreciated by more than 150%, far exceeding the price of gold and the stock market.  The question is what drives the price of this cryptocurrency.

 Bitcoin was created in 2009. In the process, Satoshi Nakamoto - the anonymous character or organization that created Bitcoin - put a limit of about 21 million units for Bitcoin.  This limit helps the value of each Bitcoin increase as the currency becomes popular.

 Currently, there are over 18.5 million units in circulation, accounting for 90% of all Bitcoin.

1. Scarcity

 By Nakamota's design, Bitcoin becomes more scarce as the network nears its maximum level.  Analysts estimate it will take 120 years to reach the limit of 21 million units, mining the remaining 10% of Bitcoin.  The scarcity or limitation of supply does not actually have a miraculous effect on increasing the value of an asset.

Why does Bitcoin price skyrocket?

The capping at 21 million units increased the value of each Bitcoin as the world's first cryptocurrency became popular. / ph: pexels

 However, the belief that there will be fewer chances of earning Bitcoin drives demand for the coin again.  In addition, Bitcoin price is not directly affected by price movements such as gold, bonds, Dow Jones index or S&P.  So many people pour money into Bitcoin as an investment in a "hidden" asset.

 Along with that is the appearance of stablecoins.  This is a cryptocurrency with a value tied to the price of a fixed asset like the USD or EUR.  These coins are backed by governments or large corporations.  For example, the US Federal Reserve is working on the digital dollar, while China is also planning to issue a digital yuan.

 JPMorgan also launched an interbank payment system that uses blockchain-based technologies to create JPM coin (JPM) digital assets.  It is these events that increase the confidence of individual and institutional investors in the legalities of digital currencies, helping Bitcoin - which is controversial - benefit.

Recently, PayPal announced that users can buy Bitcoin and other cryptocurrencies like ethereum, Bitcoin Cash and Litecoin on the platform.  Decision is considered recognition of the legality of these currencies.

 "Today, institutional investors, banks and family companies are considering - legally - investing in Bitcoin as a hedge against currency devaluation," wrote Alex Mashinsky, Exexutive Director of Celsius Network.

 Mashinsky describes it as "a good investment", not a "gold rush".  The director also predicts the Bitcoin price will reach $30,000 by the end of next year.

2. The decline of the dollar

 The government's massive pumping of money in response to the 2008 financial crisis was partly responsible for the birth of Bitcoin more than a decade ago.  That concern is also the basis for this cryptocurrency to revive this year.

Why does Bitcoin price skyrocket?

Many investors pour their money into Bitcoin as a hedge against inflation. / ph: pexels

 The Covid-19 pandemic forced governments and central banks around the world to increase spending in order to limit negative impacts on the economy.  That leads to inflation risks.  From the beginning of the year up to now, the dollar price has dropped by 4.2%.  The greenback is in its worst annual decline since 2017.

 That was also the time when Bitcoin rose to record price.  "Bitcoin is like a form of digital gold. When money is 'unraveled', Bitcoin's time has come," commented Charles Hayter, founder and CEO of analyst firm CryptoCompare.

 Meanwhile, expert Anthony Denier, CEO at cryptocurrency trading platform Webul, said low interest rates also reduce the cost of holding Bitcoin relative to dollars or bonds.

Some investors also said that the price increase of Bitcoin in 2020 is different from that of 2017. Three years ago, the currency rose sharply and then suddenly plunged without braking.  However, Bloomberg expert Matthew Weller said that at the moment, Bitcoin's increasing momentum is more sustainable even with a few declines in the coming weeks.

 Recently, famous investor Ray Dalio admitted he may be wrong to suspect Bitcoin and other cryptocurrencies.  Before that, he said that governments should take measures to limit cryptocurrencies.

 However, one thing to note is that not everyone trusts Bitcoin.  Many people believe that this cryptocurrency is best used for money laundering and other criminal activities.  They also differentiate virtual currencies from each other and blockchain technologies underpinning them.

Why does Bitcoin price skyrocket?

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