Bitcoin price quadruples over 2020, beating shares and gold. Bitcoin has gained 269% compared to the 45% for Nasdaq. But why this year? Despite arguments over the status of bitcoin, cryptocurrency remains hugely popular. The increased exposure and public understanding of crypto over the past few years has boosted demand for the limited supply sky-rocketing its price.
Bitcoin surged to $28.500 up 47% since the start of December and is on track for its biggest monthly gain since May 2019. The cryptocurrency has outperformed leading stock indices like the dollar, gold and oil.
Why is bitcoin so popular?
As other currencies, especially the US dollar having little growth or are declining, Bitcoin has attracted investment across the globe this year. Last week the US dollar dropped to its lowest level since April 2018 ahead of a strong economic recovery next year.
Bitcoin has become a more mainstream method of payment with PayPal launching crypto trading late this year they now hold nearly 70% of all Bitcoin. Growing institutional investment has assisted with Bitcoin’s bullish run, supported by an increased interest from retail investors. After many high-profile traders like Paul Tudor Jones and Stanley Druckenmiller, and trading firms like Guggenheim, Fidelity adnd Blackrock supporting Bitcoin and its potential to replace gold, retail investors have followed. Some tech firms such as Square and MicroStrategy have even used their own balance sheets to buy Bitcoin. Wall Street is getting involved too with S&P Dow Jones Indices recently announcing plans to launch cryptocurrency indices next year.
Bitcoin has been increasingly popular throughout the global pandemic as investors look for new safe investments. With central banks likely to hike interest rates in 2021 as national debts rise over 100% GDP for the UK and US, investing in Bitcoin seems like a great idea. The cryptocurrency is a hedge against inflation as its supply is capped at 21million. The scarcity of Bitcoin will help hold its value as other currencies struggle. ‘Safe’ assets like government bonds and savings accounts are no longer immune to the effects of inflation, leading investors elsewhere. Furthermore, the possible debasement of conventional currencies following the central banks’ handling of the pandemic has diverted investors towards cryptos.
Bitcoin may be a better investment than gold, as the traditionally safe investment’s price falls flat at $1,879 an ounce. Analysts predict Bitcoin will overtake gold as the most popular investment next year. Both assets are seen as safe alternative investments with a high growth potential.
The risks of bitcoin
There is still concern over regulatory issues for cryptocurrencies and with the highly volatile nature of bitcoin many wealth managers advise against investing in Bitcoin. Crypto prices are driven by speculative forces as there is no underlying basis to control price, meaning there is a high risk that you can lose capital if these forces were to swing the other way and Bitcoin were to take a serious dip. The only controller of the price of Bitcoin is demand and supply, as there is no underlying asset. Instead, wealth managers advise investing in real assets where the volatility is controlled, despite the attractiveness of crypto growth.
If you are someone driven by numbers, looking at the history books can teach us a lesson. The end of 2017 saw Bitcoin worth nearly $20, 000 with the end of 2018 seeing a close of just $3,000 after a massive fall. Although this appears scary, the rally this year has been driven by institutional buying rather than retail buying like this previous dip, giving some protection against a big drop.
As 2020 comes to a close, we can admire the huge success of Bitcoin and the extent of its recent rally. Want to invest in Bitcoin but not sure if you have the skills? Try risk-free trading with BullBear.