The amazing growth in market capitalization that the crypto-universe experienced in 2020 was largely driven by the fierce bull run of Bitcoin. Nearly 68% of the market that crossed the size of 1 trillion dollars in combined capitalization this year was occupied by Bitcoin. At an individual level, the price of Bitcoin crossed the mark of 38,000 US dollars. The currency started the year 2020 with prices hovering around 7,200 US dollars. However, with each uninterrupted long-term surge comes the periodic correction in prices. Therefore, investors are recommended not to build short-term strategies based on this bull run of Bitcoin.
The Factors Driving the Surge
Experts recognized multiple factors that played a vital role in helping Bitcoin reach where it is today. Of these factors, the most crucial has been the interest of institutional investors in the currency.
Apart from the large scale traditional finance companies, such as MassMutual insurance, companies like MicroStrategy, Square, and Grayscale’s Bitcoin Trust have built substantial holdings of Bitcoin. Large scale institutions, both public and private, have started making Bitcoin reserves instead of holding cash. The trend has gained momentum in the aftermath of the COVID 19 pandemic when institutional investors are not feeling confident about the growth potential of the traditional money market instruments. With a notable decline in the purchasing power of paper money worldwide, investors are increasingly looking forward to hedging their assets against digital currencies. Bitcoin, being the most popular among the cryptocurrencies, has leveraged this investment trend to its fullest.
Bohdan Prylepa is the CTO and co-founder of Prof-it Blockchain Ltd and a COO of Bitcoin Ultimatum-a Bitcoin hard fork. Prylepa believes that after a pandemic-induced fiat debasement, the investment communities have started seeing Bitcoin as a ‘store-of-value’ rather than only a ‘Medium-of-Exchange’.
This long-term value proposition offered by Bitcoin partly explains why it has become an entity with more market capitalization, at present, than companies like Visa, Samsung, or Walmart.
The interest of large and well-known companies has not remained limited to companies investing in them. Large scale firms, such as PayPal, have started collaborating with Bitcoin and other currencies to facilitate crypto-payments. Such collaborations have not only added more credence to the use of cryptocurrencies as a mainstream medium of exchange but have also expanded its usability and, in turn, it’s market.
Bohdan believes that once PayPal starts rolling out its crypto plans to its more nearly 325 million users, the trading of crypto will become a ‘global affair’ and the ‘crypto market valuation will likely soar’.
Bitcoin, as a currency occupying more than two-thirds of the crypto-universe, would be the largest beneficiary of this rollout. Moreover, including crypto trading support as a feature is gaining popularity among other reputed trading facilitators and payment services. Such examples include platforms like Square and Robinhood.
Another less-discussed factor that has been equally important in driving the upsurge in Bitcoin prices has been its halving. Traditionally, in about every four years or every 210,000 blocks mined, rewards given to miners for processing Bitcoin transactions are reduced to half. This mechanism is known as halving.
An upsurge in the prices of Bitcoin can be seen as a direct outcome of Bitcoin’s periodic halving. The first halving of bitcoin occurred in November 2012. It caused a massive surge in the prices of Bitcoin. From $12, Bitcoin jumped to a price of $1,150. The second halving of Bitcoin happened in 2016. It led to another massive increase in Bitcoin’s prices, from 650 US dollars to 20,000 US dollars. The third halving, preceding the bull run of 2020, happened in May 2020.
Overall, industry experts believe that the fast accelerating interest of institutional investors in Bitcoin and its collaborations with large scale crypto service providers would drive it further to scale record heights. These experts believe that Bitcoin has the potential to cross the mark of $100,000 and even $135,000 by the time it is 2030.