Why is the Bitcoin soaring in 2020?

Markets Update: Bitcoin Cash Rockets Forward Leading the Crypto Bull Rally  | Market Updates Bitcoin News

Bitcoin soared past $15,500 this week, hitting its highest level since 2018 as excitement over the United States election spilled over from macro markets. 

BTC vs S&P
Bitcoin vs S&P

Since the market crash in march Bitcoin has delivered 180% return ,which almost 4x of stock market return!

What is Driving this Rally?

There are three major factors driving this rally.

Presidential Race Effect

US election: Bitcoin to surge to $400,000 if Biden wins, expert claims |  City & Business | Finance | Express.co.uk

Having Biden in the White House and a republican senate is great for cryptocurrency as his presidency will drive dollar down.

These projections are motivating people to invest in inflation hedges like gold,metals and more so crypto currency.

As it would become very hard for democrats to push stimulus bill due to a republican senate, the onus to manage the economic crisis will fall on Fed. The fed will have to keep rates very low to stimulate the economy. With lower rates people will borrow more and increase inflation.

With more dollar in the system relative value of dollar will weaken making imports more expensive and hence even more inflation.

Bitcoin is limited and hence a good way to beat this dollar inlfation.

Insitutional Participation

Bitcoin

There are a few key differences now from prior bull runs in bitcoin, such as in 2017 when the cryptocurrency’s price shot to up to about $20,000. 

There’s been a rapid explosion in the industry’s support infrastructure, from the development of regulated asset custodians to more reliable pricing feeds and more recently U.S. officials’ move to explicitly authorize banks to provide services to cryptocurrency companies.

Some very well known companies have recently either invested in Bitcoin or are in the process of building a framework around it which brings the much needed credibility to the future of Bitcoin.

Last month, PayPal announced it would let users buy a handful of cryptocurrencies, including Ethereum and Bitcoin, causing the price of the latter to rise close to $13,200.

The PayPal announcement came two weeks after payment giant Square announced it was adding $50 million worth of Bitcoin to its balance sheet as a long-term investment, and two months after another publicly traded company, MicroStrategy, made a $250 million Bitcoin purchase.

The Singaporean multinational banking and financial services corporation DBS published an announcement revealing it was launching a cryptocurrency exchange. 

DBS Bank Ltd is Southeast Asia’s largest bank in terms of assets under management (AUM), as the corporation’s 100+ branches hold more than $600 billion today. 

The founder and chief investment officer of Tudor Investment Corporation also compared investing in bitcoin to putting money behind some of the biggest tech companies like Apple and Google.

First Mover: Search Interest in Bitcoin's Halving Reaches Fever Pitch as  Price Hits $10K - CoinDesk

“Bitcoin has this enormous contingence of really, really smart and sophisticated people who believe in it,” Jones said. “It’s like investing with Steve Jobs and Apple or investing in Google early.”

Billionaire hedge fund manager Paul Tudor Jones has turned more bullish on bitcoin, calling it the best inflation hedge.

“I like bitcoin even more now than I did then. I think we are in the first inning of bitcoin and it’s got a long way to go,”

Comparison with Gold

Lot of Institutions and people have recently started comparing bitcoin with gold

Image


“The potential long-term upside for bitcoin is considerable if it competes more intensely with gold as an ‘alternative’ currency we believe, given that Millenials would become over time a more important component of investors’ universe.”

jpmorgan bitcoin

JPMorgan’s note essentially emphasized three major reasons to support the long-term growth potential of Bitcoin.

First, Bitcoin has to rise 10 times to match the private sector’s gold investment. Second, cryptocurrencies have high utility. Third, BTC could appeal to millennials in the longer term.

Following the integration of crypto purchases by PayPal and the rapid increase in institutional demand, Bitcoin is increasingly being viewed as a safe-haven asset.

There is a massive difference in the valuation of gold and Bitcoin. Albeit the former has been recognized as a safe-haven asset for a long period, BTC has many distinct advantages. JPMorgan analysts said:


“Mechnically, the market cap of bitcoin would have to rise 10 times from here to match the total private sector investment in gold via ETFs or bars and coins.”

One of the advantages Bitcoin has over gold is utility. Bitcoin is a blockchain network at its core. That means users can send BTC to one another on a public ledger, efficiently and practically. To transfer gold, there needs to be physical delivery, which becomes challenging.

As seen in many cold wallet transfers, it is easier to move $1 billion worth of capital on the Bitcoin blockchain than with physical gold. The bank’s analysts further explained:

“Cryptocurrencies derive value not only because they serve as stores of wealth but also due to their utility as means of payment. The more economic agents accept cryptocurrencies as a means of payment in the future, the higher their utility and value.”

Recent Survey by Grayscale capture the newfound interest in bitcoin

A survey conducted by digital asset manager Grayscale Investments suggests investor interest in bitcoin is on the rise and the top cryptocurrency by market cap is well on its way toward mainstream adoption

screen-shot-2020-10-27-at-12-43-05-pm

screen-shot-2020-10-27-at-12-46-55-pm

How to Invest?

You can buy bitcoin through various exchanges in India-Wazirx

You can park cryptocurrency to get 8-10% interest on it-Celsius Network

To invest in mutual funds of cryptocurrency you have the below option-Crypto Fund Iconomi

Conclusion

Last 6-7 months massive changes have propelled cryptocurrency and bitcoin as a very interesting investment option. However it is important to also to exercise restrain and not go overboard. Invest in a staggered manner and to the extent where you can digest the volatility!

Randomwalk

I dabble in Quantitative finance,Analytics P2P investing,Derivative trading and Product development.My goal is to help people create low cost optimized portfolio .

Leave a Reply

Your email address will not be published. Required fields are marked *