When we started writing this article, Bitcoin was trading at an all-time high of over $50,000. By the time the article was finished some days later, the value had fallen by $12,000. Despite its inherent volatility with its characteristic peaks and troughs, institutional investors – as well as retail investors – are showing confidence on overall long-term growth for the crypto currency.
Analysts and blockchain experts alike are saying a combination of factors have emerged that look likely to fuel the cryptocurrency’s surge through 2021.
Let’s look at three of the main reasons why traders are looking at going long on bitcoin this year.
Retail Buying and Selling
Daily purchases of goods and services has always been the main sticking point regarding bitcoin’s viability as a global currency. Very few businesses accept bitcoin payments.
But in 2020, we saw real signs of an emerging bitcoin economy, particularly in the world of financial services and fintech. In October, the San-Francisco based payments giant Square invested $50 million into bitcoin, saying the cryptocurrency “aligns with the company’s purpose.”
Then on February 23rd 2021, the company made another titanic investment, more than tripling its 2020 investment with a buy of $170 million worth of bitcoin.
Square founder and CEO Jack Dorsey, who is also the founder of Twitter, is a long-time advocate of the digital currency and believes crypto technology will lower the barrier for Square to enter new markets.
In the same month that Square made its initial investment, PayPal also entered the cryptocurrency market.
It announced a new service that would allow its customers to buy and sell Bitcoin and other virtual currencies using their PayPal accounts. More importantly, the purchased coins could then be used to buy goods and services from the 26 million merchants that accept PayPal.
PayPal will convert the cryptos into the national currencies it currently services, meaning the merchant being paid will not receive the digital coins, just the corresponding amount in pounds, dollars or euros.
In 2021, we will almost certainly see an expansion of this mainstream embrace. Bitcoin becoming a mainstream form of tender for goods and services is seen as the largest hurdle that, once overcome, will lead to the crypto coin reaching prices of between $150,000 to over $300,000 according to analysts.
With Joe Biden having become President of the United States in January 2021, bitcoin enthusiasts are hopeful that the new administration will take a friendlier stance over cryptocurrency than the Donald Trump white house.
Trump had declared that he’s “not a fan of Bitcoin and other cryptocurrencies” and appointed several crypto sceptics to his cabinet, including Steven Mnuchin as Treasury Secretary.
Kristin Smith, who is executive director of the Blockchain Association, a trade group representing the cryptocurrency industry, is hopeful that a more amenable attitude towards crypto will prevail in the new administration.
“I think what we see with a Biden administration is an opportunity to get some fresh faces into the key regulatory agencies that might be more willing than some of the other regulators that we have today to move forward on policies that would be good for crypto,” she said.
For example, Biden has nominated Gary Gensler to be the next chair of the Securities and Exchange Commission. Gensler is an ex-Goldman Sachs banker who currently teaches courses on blockchain technology and digital currencies at the MIT Sloan School of Management.
The choice of Gensler to head the main regulatory body of all financial services in the US is a “good sign”, according to Smith. “He is very familiar with crypto and blockchain and hopefully can put the right team of regulators together that will be more willing to work together to advance policies.”
Indeed, the appointment of Gensler is a positive contrast to the void in knowledge about blockchain technology among US lawmakers. Gensler’s familiarity and involvement with cryptocurrency sets him apart from most regulators and members of Congress who have come before him, and this surely has played a part in his appointment.
We can therefore expect the SEC to approach crypto regulation with far less scepticism in 2021.
“That is probably the most you can ask for…Just the idea that we now have somebody in there who knows what Ethereum is, is a really good thing,”
Demand for inflation hedges
Although the surging price of bitcoin may on first impressions appear as though the digital currency is completely disconnected from the covid-19 pandemic, the truth is that the health crisis has played a critical role in driving up the price of bitcoin, ethereum and other tokens.
As governments around the world have poured trillions of dollars of stimulus into programs designed to shelter the economy from the most devastating effects of global lockdowns, these programmes have undoubtedly led to growing fears of inflation.
The stream of fresh fiat and loose monetary conditions has boosted the demand for bitcoin as a hedge against inflation. Because of its limite d supply of 21 million tokens, and because the decentralized currency is insulated from policy decisions, the token is seen as an alternative to gold and other hedge assets.
Any time large quantities of money are printed over a sustained period, investors begin to search for hard assets to counter the risk of inflation, an asset that, unlike money, will not be going up in terms of supply.
In 2021, it seems bitcoin will be that hedge investment for some of the most important players in the markets.
What’s In Store For The Hottest Currency of 2021?
Institutional investors remain poised to maintain or grow their bitcoin positions while growing interest in blockchain and cryptocurrencies from the retail market is also protecting prices from falling.
What we’re seeing is likely the adoption of a new technology by huge swaths of the world’s population over a short period. When we talk about new technologies, it may be frivolous to suggest that there is ever such a thing as a top. What is the “top” of the internet?
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