Bitcoin, a financial innovation that has been around for 12 years, is now a big topic of discussion around the globe because of its recent performance.
Looking at last year’s Bitcoin price charts, the king of the cryptocurrency realm has soared a whopping 306% as a result of increased interest from both retail and institutional investors.
In the context of this staggering performance, it is fair to ask if this recent uptrend can continue and the answer to that question lies in studying the primary drivers that have been fuelling its recent surge.
For this purpose, business consultant and MBA graduate Jasdeep Singh from CT has shared with us a summary of the main catalysts that have contributed to BTC’s latest uptick.
What’s is driving the price of Bitcoin?
Increasing interest from institutional investors
The recent price hikes seen by the cryptocurrency have taken place within a backdrop of higher levels of institutional adoption.
With large purchases made by an increasing number of companies, there seems to be a direct correlation between Bitcoin’s surge and higher levels of interest among institutional players.
According to a report from Reuters, Bitcoin fetched inflows of as much as $5 billion in the year 2020 alone. Meanwhile, a good example of institutional participation is the surge of Grayscale’s cryptocurrency funds soaring to $24.5 billion recently.
Tesla’s investment and acceptance of Bitcoin as a currency
When Tesla revealed a big purchase of Bitcoin as part of its disclosures that came within its annual report, it dominated headlines since 8 February. According to Tesla’s SEC filing, the company purchased a total of $1.5 billion in the cryptocurrency to diversify its cash holdings.
On top of this, the electric vehicle maker will start accepting Bitcoins as a method of payment. The company, headed by Elon Musk, apparently sees this purchase as a way to hedge its cash reserves against the debasement of fiat currencies resulting from highly accommodative monetary policies around the globe.
Elon Musk’s support
There have been several instances where the high-profile billionaire has visibly gone head over heels for Bitcoin. In January 2021, he added the hashtag #bitcoin to his Twitter bio, pushing the price of the crypto asset 20% higher in a matter of hours as many rushed to buy BTC with the expectation that Tesla would soon join the crypto party.
The SpaceX founder has around 47 million followers on Twitter and his remarks usually have a major effect on the price of any individual asset he mentions.
Ultra-accommodative policies from central banks – including the Federal Reserve
The Fed’s primary focus now is to stabilize the financial markets and will be until the United States is safely out of the virus crisis from an economic standpoint.
This goal ensures more spending and smoother market functioning that can only be accomplished by frequent purchase of bonds and other financial assets. However, it could also lead to higher inflation, currency debasement, and the unpopularity of fixed-interest-bearing investments like bonds.
In this context, Dr. Singh from Connecticut highlights that investors are forced to look for other alternatives to park their funds to avoid a drop in the purchasing power of their holdings.
With Bitcoin being a decentralized asset that is not controlled by any government, investors have increasingly viewed the crypto token as a plausible store of value and a way to hedge their portfolios.
Paypal’s launch of a cryptocurrency trading platform
During the fourth quarter of last year, digital payments giant PayPal went all-in on Bitcoin by launching a proprietary trading platform through which users can buy and sell the cryptocurrency.
Meanwhile, the company is ready to take this thing to the next level by introducing a host of services to its customers. Currently, PayPal facilitates the trading of cryptocurrencies including Bitcoin, Bitcoin Cash, Ethereum, and Litecoin, but, at the moment, these features are only available for US clients. A global move would open the door of the cryptocurrency market to PayPal’s 345 million customers, who will then be able to easily trade these tokens in a much more convenient manner. Numerically, this has the potential of bringing billions of dollars into the crypto world.
For many, Bitcoin represents the future of payments and investors seem to be agreeing with this statement based on how the price has behaved.
As institutional investors continue to flock to Bitcoin as a safe haven against fiat debasement, the price of the crypto token should continue to move higher as billions of dollars flow into its decentralized ledgers.
The year 2021 may witness a similarly wild ride as the previous year, with mainstream adoption possibly expanding beyond expectations.
Michael Saylor from Micro Strategy, a prominent asset manager and Bitcoin buyer, puts it this way: “Bitcoin is going to flip gold, and it’s going to subsume the entire gold market cap.”