Why Bitcoin is back in the limelight

Posted: 4 December 2020 1:52 pm
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Bitcoin is in the limelight with a chorus of investors lending weight to Bitcoin’s latest rise.

  • Bitcoin is pushing its all-time highs once more.
  • Institutional investment in Bitcoin as an inflation hedge is growing.
  • Bitcoin's growth comes amid concerns over its impact on the US dollar's role internationally.

Bitcoin is right now challenging its January 2018 all-time high of US$20,000 following a characteristically volatile and rapid rise, nearly tripling its price from early this year. However, aside from the bullish market indications, there are other factors pushing Bitcoin once more into the limelight.

There are a couple of main reasons why Bitcoin is being thrust back into the limelight. One reason is that institutional investors are flocking to the new "store of value". Second, fears and speculation surround the United States Federal Reserve Bank’s growing balance sheet driven by huge quantitative easing as a COVID-19 relief measure.

Snowballing institutional interest in Bitcoin and digital assets

There is considerable excitement around PayPal's entry to the digital asset space. Within four weeks of partnering with Paxos to provide Bitcoin transactions on its network, PayPal is already buying nearly 70% of new Bitcoin supply according to a report by Pantera capital.

Aside from transaction services, wealth management firms and institutional investors are adding to the demand for Bitcoin. Paul Tudor Jones, founder and CEO of Tudor Investment wrote to the wealth fund’s members that he’s betting on Bitcoin by incorporating the asset into the overarching investment strategy of the firm.

Jones has also revealed that up to 2% of the firm’s portfolio will be targeted towards investment in Bitcoin and other digital assets. Declaring even greater positive sentiment for Bitcoin, Jones said that the world could be witnessing a historic moment with the "birthing of a store of value".

"Every day that goes by that bitcoin survives, the trust in it will go up," he forecasted.

Bitcoin has increased its price nearly three times since the beginning of 2020. This has occurred in the same year as the Federal Reserve has pursued a massive stimulus package as part of COVID-19 relief measures. This could be lending credit to Wall Street appraisals of Bitcoin as a hedge against inflationary pressures on the US currency leading to fresh interest from big-name investors.

A response to Federal Reserve bond purchasing

Larry Fink has built the largest hedge fund on Earth with an estimated US$7 trillion in assets under management. Addressing a Council on Foreign Relations digital meeting, Fink said Bitcoin and other digital currencies were having a “real impact” on the US currency.

He even went as far as to say that the burgeoning asset class could be decreasing the relevance of the US dollar. "I'm not talking about for Americans, I'm talking about for international holders of dollar-based assets," Fink said.

Jones went on to describe the reaction to the Federal Reserve’s quantitative easing measures as the public health response to COVID-19 strangled economies around the world. He added that the circumstances were unprecedented with central banks across the world mirroring the Federal Reserve with its aggressive bond purchasing, necessitating strategies to "defend against inflation".

Interested in cryptocurrency? Learn more about the basics with our beginner’s guide to Bitcoin, see how to keep your crypto safe with our end to end guide to cryptocurrency security and dive deeper with our simple guide to DeFi.

Disclaimer: This information should not be interpreted as an endorsement of cryptocurrency or any specific provider, service or offering. It is not a recommendation to trade. Cryptocurrencies are speculative, complex and involve significant risks – they are highly volatile and sensitive to secondary activity. Performance is unpredictable and past performance is no guarantee of future performance. Consider your own circumstances, and obtain your own advice, before relying on this information. You should also verify the nature of any product or service (including its legal status and relevant regulatory requirements) and consult the relevant Regulators' websites before making any decision. Finder, or the author, may have holdings in the cryptocurrencies discussed.

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