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What's the fuss about Bitcoin recently?
On New Year's Eve, Bitcoin had just failed the $ 30,000 mark - now it's done. On Saturday afternoon, the Bitcoin price on the Luxembourg trading platform Bitstamp rose to over $ 32,500. With the most recent increase, Bitcoin has become more expensive by almost $ 3,000, or around ten percent, since the beginning of the new year. On trading venues other than Bitstamp, the stalls may differ, as there is no central Bitcoin trading.
The cryptocurrency Bitcoin experienced an unprecedented rise in the 2020 pandemic year. What seems astonishing is that the value of Bitcoin even benefited from the pandemic. Since November end - Bitcoin exceeded its previous record of 2018. On December 16, last year, Bitcoin surpassed the $ 20,000 mark in value, and since then, it is on the rise.
The remarkable thing is that the current problems surrounding the fourth largest cryptocurrency XRP have not affected Bitcoin so far. Since the US Securities and Exchange Commission reconciled against XRP architect Ripple, the value of XRP has been in free fall. Several stock exchanges and businesses have delisted the crypto-currency.
Corona crisis: a catalyst
Bitcoin is experiencing an uninterrupted influx of investors. And this shows the connection with the corona crisis. Confidence in institutionalized currencies is falling. There is a growing concern in the US that inflation will accelerate. Across the world, ever-increasing corona aid packages are fueling this fear. This rise in values can be seen in Bitcoin and the prices for precious metals. Gold and silver are experiencing a similar run. Experts blame institutional investors for the current rise in the BTC price, who want to protect the assets entrusted to them from devaluation. Companies, insurance companies, and funds are increasingly relying on shifting liquid funds to Bitcoin in the USA. The payment service PayPal announced that it would allow its customers to pay with Bitcoins also resulted in an enormous surge in demand.
New momentum from US election and growing funds
Because of the recently uncertain election result in the US, some investors were looking for alternative investment opportunities to cryptocurrencies, said analyst Timo Emden from Emden Research a week ago. They wanted to protect themselves from stock market turbulence.
Sören Hettler, an expert at DZ-Bank, wrote in a recent analysis that the development driver was probably less the US presidential election than the hope for a sharp rise in demand. Several Bitcoin investment funds, such as that of asset manager Graysca, have seen significant inflows throughout the past few months.
Regulation in the starting blocks
Investors also consider the central banks' zero interest rate policy and the governments' gigantic spending programs in the corona pandemic to be essential drivers. According to the DZ Bank analyst, they would have led to a wave of liquidity on which the cryptocurrencies also swim. More and more young people who entered the market this year and often traded Bitcoin could also play a role. Regulation is considered the key to long-term demand for cryptocurrencies. There has been some progress recently. At the end of September 2020, the EU Commission proposed uniform rules implemented at the end of 2022 and thus create security for investors.
Also, the topic of cryptocurrencies is currently being discussed increasingly at the central banks' level and is therefore even better known. The European Central Bank (ECB), for example, is skeptical of Bitcoin but is considering the introduction of a "digital euro."
Prof. Philipp Sandner
I believe that we are currently encountering the rise of Bitcoin and blockchain technology.
— Prof. Philipp Sandner
When demand increases, scarcity drives prices up.
The Bitcoin rate effects are understandable as the market capitalization of Bitcoin is currently a total of 550 billion dollars from 18.6 million Bitcoins. Tesla alone, at around 600 billion, already has a higher value than all BTC together. In business, it is well known that demand increases with a minimal supply that cannot be expanded quickly. These are the reasons for the exploding prices. The US bank JP Morgan's financial experts have determined that there is currently a BTC demand from institutional investors in the order of around 600 billion dollars. From the institutional environment alone, there is more BTC demand than there is anywhere in the world. This means that the Bitcoin course should only know one direction.
What else is possible?
After crossing the $ 10,000 mark, is the Bitcoin rally now breaking out further upwards? On the one hand, the reasons mentioned here suggest that the increase could well continue for a while. It can also be assumed that the Bitcoin topic will move a little closer to the media's focus after the recent rally. In the past, more attention has usually led to rising prices.
However, the cryptocurrency is still a highly volatile investment. In the last few years, there have been significant price gains and losses, which fundamentally could hardly be justified or not at all. Rob Sluymer of Fundstrat Global Advisors believes that Bitcoin will be stable between 10,000 and 11,000 this year. But it can also be more optimistic: Patrick Heusser from the Swiss crypto asset manager Crypto Finance even predicted an exchange rate of 20,000 dollars for 2020 in November 2019.
Bubble or sustained surge?
"I believe that we are currently encountering the rise of Bitcoin and blockchain technology," says Philipp Sandner, Head of the Blockchain Center at the Frankfurt School of Finance & Management, in an interview with boerse.ARD.de. He sees a long-term trend. This year, the $ 20,000 mark is still possible. In the next year, it could even go up to $ 50,000. The price ultimately develops out of supply and demand.
In May, the supply, which has an upper limit, was reduced by what is known as "halving" - for the third time in its history. At the same time, demand rose. More and more German banks such as the Scheich bank, companies, issuers, and stock exchanges integrate the digital currency, says Sandner. This is how money flows into the market. Besides, individual companies in the USA exchanged their cash holdings with Bitcoin. Retail also seems to be becoming more professional. "These are all new dimensions," emphasizes the expert. Although there are short-term zigzag movements, the price is on an upward trend in the long term.
DZ bank expert Hettler says: "The arguments for the price increase are quite understandable." But: A guarantee for a continuation of the dynamic or even a sideways movement is not guaranteed. Bitcoin has yet to develop tradition and a lasting belief in the specialty and intrinsic value.