For investors, 2020 is destined to be a turbulent year. Affected by the spread of the new crown epidemic, geopolitical conflicts, loose monetary policy and other aspects, later this year, bitcoin repeatedly hit record highs, becoming a new investment outlet. More and more institutional investors and well-known enterprises choose to buy the asset to fight inflation and maintain the value of the asset.
However, although bitcoin outperformed gold, silver and other traditional assets in the whole year, the encrypted asset still needs to face the challenge of global government regulation in 2021, and the prospect of this asset will be full of uncertainty.
During the year, it rose 275%, more than five times higher than the low in March
Driven by global fiscal and monetary policies, bitcoin ushered in the “second bull market” in 2017.
During the outbreak in March, bitcoin once fell below $4000 due to the spread of market panic, with the biggest drop of 38% on March 12.
But then, in May this year, bitcoin ushered in the third half in its history, with block rewards reduced from 12.5 BTCs to 6.25 BTCs. According to the historical trend, every time bitcoin is halved, the cryptocurrency market will be booming. After the second halving in 2016, the price of bitcoin was close to $20000 in the second year.
Sure enough, bitcoin rose all the way in the second half of this year, breaking through $20000, setting a record price. After standing at the important threshold of US $20000, bitcoin climbed to US $28000, approaching us $30000, and its market value exceeded US $500 billion, surpassing visa (NYSE: V), the global financial platform.
Throughout the year, bitcoin’s growth has increased by 275% in the year, five times higher than the low point of the epidemic, surpassing traditional assets such as gold, silver and crude oil. In addition, under the leadership of bitcoin, the top ten cryptocurrencies in terms of market value gained a substantial increase in the year. Since the beginning of the year, Ethereum has increased by 450%, Leyte by 210% and Ruibo by 18%.
(bitcoin daily chart, source: Yingwei Finance) Investing.com )
Why does bitcoin keep breaking new heights and what is the driving force behind it?
According to William, chief researcher of okex research, bitcoin has set new highs in recent years. The direct reason is that high net worth and institutional investors have entered the market. “The rapid rise of bitcoin in recent years may be different from the speculation or hype that people think of. Speculation and hype do exist, but they are not the main reason.”
Recently, a series of well-known institutions, including Guggenheim, a large asset management company, and Wantong life insurance company of the United States, have announced the purchase of bitcoin. Micro strategy, the world’s largest independent business intelligence company, has purchased a large amount of bitcoin at a total price of over US $1 billion four times since August.
According to the JPMorgan report, the trend of investing in bitcoin is shifting from family financial institutions and wealthy investors to insurance companies and pension funds. Data show that since September this year, institutional investors have bought 50 bitcoins, worth about $11.5 billion. Although insurance funds and pension institutions can not allocate too much bitcoin, it may still have a significant impact on it.
In addition, the loose monetary policies that countries have to adopt in response to the epidemic have pushed up inflation expectations and weakened the attractiveness of sovereign currencies such as the US dollar. The US dollar index has depreciated nearly 7% during the year, making investors have to look for new safe haven assets.
Jeffrey Halley, senior market analyst at OANDA Asia Pacific Pte, said: “more quantitative easing by the Federal Reserve, higher government debt or steeper yield curve all bring certain risks to investors. Bitcoin is the best choice to hedge against the depreciation of the US dollar.”
In addition, bitcoin has been gradually accepted by mainstream institutions, which has objectively brought attention to the market. Since this year, online payment institutions paypal and square have successively announced the launch of cryptocurrency payment services, allowing users to buy and sell bitcoin.
Bubble or digital gold? Where will bitcoin go next year?
Although bitcoin gains are staggering, the debate over whether bitcoin is a bubble or “digital gold” has never stopped.
Bitcoin bulls seem to be more active at the end of the year when bitcoin repeatedly hit new heights. Blockchain.com Research Director Garrick hileman predicts that as more and more large institutions are willing to hold bitcoin and boost its reserve currency status, the market value of bitcoin will reach US $1 trillion as soon as next year, with a price of US $54000.
Guggenheim believes that based on the scarcity of bitcoin and its relative value relative to gold, according to the fundamental analysis, the final value of bitcoin should be about $400000.
Dan Tapiero, co-founder of gold bullion international, also believes that it is only a matter of time before bitcoin prices soar to six figures. He said in an interview that bitcoin prices could range from $300000 to $500000, which is 20 to 30 times the current price.
However, there are many voices warning bitcoin risks in the market. Ruby, a well-known economist who accurately predicted the subprime mortgage crisis in 2008, warned that the bitcoin bubble is about to burst. He pointed out that bitcoin can not even be regarded as an asset. What it owns is only a speculative and self realized rise, which is completely driven by market manipulation.
Ray Dalio, founder of Bridgewater, has also warned investors that bitcoin is likely to be outlawed by the government. A few weeks later, though, Dario softened his stance. He later claimed that bitcoin, like other digital currencies, could be used as a form of diversification over the past decade, similar to gold and other assets with limited supply.
In addition, the government regulatory risk is still the sword of Damocles hanging on the head of bitcoin. Earlier, the U.S. Treasury Department proposed new regulations on the supervision of digital currency, requiring some cryptocurrency dealers to provide information about their identities, in order to curb the anonymous asset transfer by criminals using this new technology. In addition, Janet Yellen, who was nominated by Biden as the new US Treasury Secretary, has also warned investors in recent years that bitcoin is a “highly speculative asset” and “not a stable means of value storage”.