Bitcoin, the digital cryptocurrency that took the financial world by storm in 2017, is back again in the headlines as it fiddles within inches of its all-time-high record. The last time Bitcoin was at $20,000, it was being covered by every financial analyst and their grandma. However, the euphoria was short lived as the digital token tumbled to half of its price. This time, analysts say, the bull run is more mature. Some even go to the extent of saying that the bull run is yet to begin. We explore the reasons behind Bitcoin’s massive 4x rally since its monster crash in March 2020 and what fate awaits it in the months ahead.
One of the very core factors driving this huge rally has been the highly-talked about institutional attention towards the flagship currency, according to many analysts. And it couldn’t have come at a better time. 2020 has been a boon for Bitcoin as the world financial juggernaut came to a screeching halt due to COVID-19. This led to extreme forced measures by governments to stimulate the economy unlike anything we’ve seen before. The US Federal Reserve along with European allies decided to bail out the stock market with trillions of freshly printed money. This was an obvious cause of concern for large institutions who kept large cash reserves in USD as inflation meant slowly losing value in their stockpile.
Slowly but surely, big companies and American hedge funds like MicroStrategy came out with announcements that they bought $425 million worth of Bitcoin. Well-known payments services firm, Square, headed by Twitter CEO Jack Dorsey, who is a great admirer of the cryptocurrency, also recently announced an investment of $50 million into Bitcoin. These announcements were just the tip of the iceberg that showed how Bitcoin had transitioned from being called “dark web money” to a legitimate reserve asset adopted by big institutions as hedge against inflation.
Many undermine the influence that a halving event has on the long-term price surge of Bitcoin. Put simply, a halving cuts the supply of miner Bitcoin by half and 2020’s halving cut the supply from 12.5 Bitcoins to 6.25. This means that Bitcoin became an even more scarce commodity even as demand for it kept surging due to a combination of favourable factors.
It should be noted that the true effects of the halving aren’t noticeable immediately as big Bitcoin miners have stockpiles of it but as time goes by, smaller miners get out of the system because of unsustainability thus leaving the larger ones. According to analysts, Bitcoin price shows surges six months after the halving event typically. Interestingly enough, Bitcoin halving thus year coincided with the COVID-19 effect which not only fundamentally made it stronger but also amplified the cryptocurrency’s value in the eyes of retail and institutional investors.
Bitcoin’s fundamental deflationary property
Many analysts including CasaHODL co-founder Jameson Lopp, and Dan Held head of growth at United States cryptocurrency exchange Kraken, believe that this bull run hasn’t even started and we’re just warming up. And one of the key reasons for that is that a majority of investors aren’t ready to part with their Bitcoin. On-chain statistics showed that 61% of the total BTC supply has remained stationary for over a year further magnifying the already increasing supply crunch of Bitcoin. Bitcoin balances on exchanges hitting lows also added more credibility to this theory.
Bitcoin is at the beginning of a bull run:
– 97% of UTXOs are in profit
– 61% Bitcoin hasn't moved in over a year (ATH)
– Just had a halving
– Central bank money printing in overdrive
– Global debt as a % of GDP is the highest its been in recorded history (peacetime) pic.twitter.com/6WNENvOJRr
— Dan Held (@danheld) August 24, 2020
Case for further upside in Bitcoin
Paypal’s recent foray into cryptocurrencies allowing its huge 346 million user base to buy and sell Bitcoin directly has probably been the cherry on top of so many bullish factors. In fact, Paypal’s announcement came in the backdrop of the US government’s announcement to allow US banks to custody cryptocurrencies for the first time in history. This was inherently very bullish news overlooked by many as it mirrored investor sentiment in the US towards this new asset class. Paypal’s move in this light, although a big catalyst, looks more like an effect rather than a cause.
For thousands of years, we crossed oceans in wooden ships & stored value in golden coins. With the invention of steel, wooden ships became ornamental yachts. With the invention of #Bitcoin, golden coins will become ornamental jewelry.https://t.co/OskseN3Rjf
— Michael Saylor (@michael_saylor) November 19, 2020
Furthermore, with so many new investors now having a clear official on-ramp to buy Bitcoin and more ways being opened up, it is clear that Bitcoin’s scarcity leaves only one way for its price to go in the near future. Of course, it should be noted that there are always counter-arguments and opposing views with valid justifications as well. Most factors mentioned here are of fundamental and macro-economy related and can be verifed easily. Some others are subjective as well and readers should always do their own due dilligence before investing in these highly speculative assets.