Summary
-The price of Bitcoin has continued to rise in recent months, and there are several reasons behind the surge.
-High-profile figures and companies have expressed their support for Bitcoin.
-Other reasons include the Bitcoin halving, which directly affects the price of Bitcoin.
The price of Bitcoin exceeded $16,000 for the first time in three years. As of press time, its current price is $16,081, which is 28% more than the past three months.
In March, the price of Bitcoin dropped sharply to its lowest point this year, hitting $4,000. Since then, the price of Bitcoin has been rising rapidly, rebounding continuously, and has remained above the price of $10,000, and has recently set a new high since the epic Bitcoin bull market in 2017. But this time, the reasons for the soaring price of Bitcoin are very different from before.
Why does the price of Bitcoin increase?
There are many reasons for the rise in Bitcoin prices. Investment from large institutions such as MicroStrategy has led this trend, and large companies like Grayscale are also managing Bitcoin for their clients. More importantly, since Paypal began to allow people to buy and sell bitcoins, buying bitcoins has now become easier.
The total supply of Bitcoin has also been reduced by half, which is one of the reasons why the price of Bitcoin has risen. In the second half of 2020, these individual factors have combined to form an impressive round of Bitcoin bull market. It all started with MicroStrategy.
MicroStrategy effect
From August to September this year, business intelligence companies and international giants-MicroStrategy invested $425 million in Bitcoin.
After MicroStrategy’s investment, Square also invested $50 million in Bitcoin on October 8, 2020-1% of the company’s total assets.
After investing in Bitcoin, MicroStrategy and Square have made considerable profits of 46% and 53%. The Bitcoins of these two companies are now worth US$620 million and US$76 million, respectively.
In recent months, these celebrities have also become the most staunch supporters of Bitcoin and have publicly expressed their praise for Bitcoin on many occasions.
MicroStrategy CEO Michael Saylor has been publicly praising Bitcoin. When his company first announced its investment intentions, Saylor described Bitcoin as “digital gold,” and he said that this cryptocurrency was “harder, stronger, faster, and smarter than any previous currency.”
Similarly, Square’s Chief Financial Officer Amrita Ahuja said: “We believe that Bitcoin has the potential to become a more popular currency in the future.” He added, “For a company that is building products based on a more inclusive future, This investment is a solid step in this journey.”
These investments and their public admiration for Bitcoin seems to have started after MicroStrategy’s first investment, so it is called the “MicroStrategy effect” by Bitcoin analyst Jason Deane of Quantum Economics. Deane added that these moves “set off a wave of institutions snapping up more bitcoins.”
These comments are also accompanied by public support for Bitcoin by others in the investment community.
Public support for investing in Bitcoin
Bitcoin’s good performance in the second half of 2020 has made some mainstream companies begin to accept this cryptocurrency.
JPMorgan Chase is the best example. In 2017, Jamie Dimon, CEO of JPMorgan Chase, labelled Bitcoin as “fraud”. In October of this year, the investment bank stated that Bitcoin is steadily competing with gold and that “the potential long-term upside of Bitcoin is considerable.”
Paul Tudor Jones is a giant in the hedge fund industry. He compares the purchase of Bitcoin to an early investment in technology companies. “Bitcoin has many features similar to early technology companies. Unfortunately, I didn’t realize this until I saw your show and knew how many people are following Bitcoin.” Jones on CNBC’s Squawk Box Said (the cooperative program CNBC Fast Money is also particularly optimistic about Bitcoin).
More importantly, Stanley Druckenmiller, a billionaire investor who had previously dismissed Bitcoin, said that this famous cryptocurrency may be better than gold. “I have many, many times more gold than I own Bitcoin, but frankly, if gold will bring benefits, then Bitcoin will bring more benefits than gold,” Druckenmiller said this month.
However, while these investors praised Bitcoin, many investment institutions are also following them in investing in Bitcoin.
Grayscale investment and Bitcoin custody
Grayscale Investment is an asset management company that is a leader in providing custody services to wealthy Bitcoin holders.
Last week, Decrypt reported how Grayscale Investments acquired more than 40,000 bitcoins for its clients. At the time of writing, these bitcoins are worth more than $600 million. However, Grayscale is not the only player.
Grayscale and the mobile payment service company CashApp purchased a total of 85,000 bitcoins worth approximately US$695 million. In the same period, in Q1 of 2020, a total of 163,800 bitcoins were mined, which means that the total bitcoins purchased by the two companies are equivalent to about half of the total bitcoins mined in the quarter.
These figures have raised concerns that Bitcoin will soon fall short of demand, because such a large number of cryptocurrencies are being snapped up by wealthy investors and giant companies, not ordinary people.
Bitcoin supply halved
The Bitcoin halving is likely to have an impact on the price of Bitcoin. Bitcoin halving occurs every four years, halving the number of coins that miners receive for adding new blocks to the Bitcoin blockchain. So starting from May, the mining volume of Bitcoin is only half of the previous few months.
“With the Bitcoin halving in May, this supply flow has been halved, which means that the number of Bitcoins obtained by miners has decreased. This may lead to a shortage of supply and thus increase the price of Bitcoin.” Blockchain Research Lab (Blockchain Research Lab) researcher Elias Strehle said.
This is a basic economic principle and is not simply limited to Bitcoin mining, or the broader cryptocurrency industry. If demand remains the same but supply decreases, it will put upward pressure on prices.
“Think about fruit. If this year’s harvest is particularly good, then the price of the fruit will fall. However, if the fruit is scarce due to the poor harvest, then the price of the fruit will rise.” Blockchain Research Laboratory Said Ingo Fiedler, co-founder of Research Lab.
In the past few months, all these reasons have had a positive impact on the price of Bitcoin, but there is still a key factor. This factor has also promoted the massive popularity of Bitcoin.
PayPal and cryptocurrency
International payment giant PayPal announced in October this year that it would launch cryptocurrency buying and selling functions on its platform. Subsequently, it confirmed on November 13 that all its customers can now use Bitcoin-and plans to bring this feature to Venmo.
The products launched this time include the ability to buy and sell four cryptocurrencies, namely BTC, BCH, ETH and LTC.
As financial industry giants such as MicroStrategy, Square and Grayscale Investment have contributed to the recognition of Bitcoin as a legal asset, the arrival of PayPal has brought greater hope for Bitcoin to hit the mainstream.
“I just bought Bitcoin on Paypal. The operation is super simple. Bitcoin will become the mainstream in this way.” said a Twitter user aliased BitcoinBF.
PayPal once questioned the suitability of Bitcoin as a currency, but now it is also one of the many giants investing in Bitcoin. And as they invested together, the price of Bitcoin rose rapidly.
