Bitcoin price is increasing with the demand from institutional investors. So what are the reasons behind this increase? Let’s focus on 5 reasons.
Bitcoin’s price surpassed the $ 20,000 milestone for the first time in its history yesterday, surpassing $ 22,000. Its current price of $ 23,132 represents a 118% increase in value over the past three months. Bitcoin is now located in an uncertain region.
Since March, it has experienced a rapid recovery from a period when Bitcoin fell drastically to its lowest point of the year and dropped to $ 4,000. The cryptocurrency has made a comeback and climbed above the $ 10,000 price point and has continued to make new highs recently. Now the point is the values not seen since Bitcoin’s epic bull run in 2017. This time though, a completely different set of reasons is pushing Bitcoin’s price to new heights.
Why Bitcoin Is Rising?
There are many reasons for the price increase of bitcoin. Big companies like Grayscale managing Bitcoin for their customers and investments by big institutions like MicroStrategy also took the lead. Moreover, it is easier to buy Bitcoins since PayPal started allowing people to buy and sell Bitcoins.
Bitcoin’s inflation level has also halved, and this has also played a role in Bitcoin’s price increase. Each of these individual factors came together to create an impressive bull run for Bitcoin in the second half of 2020. But the truth is that it all started with MicroStrategy.
From August to September this year, the business intelligence firm and international giant MicroStrategy invested $ 425 million in Bitcoin.
Following MicroStrategy’s investment, Square invested $ 50 million (1% of the company’s total assets) in Bitcoin on October 8, 2020.
Since these investments, MicroStrategy and Square have made significant profits of 103% and 113%, with each company’s Bitcoin valued at $ 864 million and $ 106 million respectively.
Another major investment in Bitcoin comes from the hedge fund One River, which reportedly purchased more than $ 600 million in cryptocurrency. But One River’s plans don’t stop there. Brevan Howard not only joined forces with Alan Howard, co-founder of Asset Management, Eric Peters, CEO of One River, committed to owning $ 1 billion in Bitcoin and Ethereum early next year.
These are big investments, but the brains behind MicroStrategy and Square have become one of the most outspoken advocates for Bitcoin in recent months.
MicroStrategy CEO Michael Saylor publicly praises Bitcoin. When the company first announced its investment intent, Saylor described Bitcoin as “digital gold” and said the cryptocurrency was “stronger, stronger, faster, and smarter than all its predecessors.”
Similarly, Amrita Ahuja, Square’s chief financial officer when the company invested in Bitcoin, said, “We believe Bitcoin has the potential to become a more ubiquitous currency in the future. Bitcoin is a more inclusive futuristic product. Our investment is a step in this journey ”.
These investments and moments of great praise for Bitcoin seemed to have started with MicroStrategy’s initial investment and hence the “MicroStrategy Effect” by Jason Deane, Bitcoin analyst at Quantum Economics. Deane added that these moves “started an institutional struggle to secure as much Bitcoin as possible.”
These statements were accompanied by a lot of public support for Bitcoin from other parts of the investment world.
Public Support for Bitcoin Investments
The positive trajectory of Bitcoin in the second half of 2020 saw some big names embracing the cryptocurrency.
JPMorgan is one of the biggest examples of this. In 2017, JPMorgan’s CEO Jamie Dimon described Bitcoin as “fraud”. This October, the investment bank said that Bitcoin is competing firmly with gold and that “Bitcoin’s potential long-term advantage is important.”
Paul Tudor Jones, a giant in the hedge fund industry, compared buying Bitcoin to an early investment in technology. “Bitcoin has many of the attributes of being an early investor in a tech company, and unfortunately it is god-good how many different people are in Bitcoin until it comes to your schedule and is surrounded,” Jones said.
Moreover, Stanley Druckenmiller, a billionaire investor who previously rejected Bitcoin, said the famous cryptocurrency could be better than gold. “I have a lot more gold than I own Bitcoin, but frankly, if my gold investment works, my Bitcoin investment will probably work better,” Druckenmiller said this month.
Keith McCullough, CEO of risk management firm Hedgeye, is in a decline in Bitcoin. He sold it on October 6th, later announced that he actually bought it back on October 12th. This means that it has pushed the Bitcoin wave above $ 11,500.
McCullough added that he has invested a large amount of money in MicroStrategy shares, which are heavily invested in Bitcoin. So he somehow invested in cryptocurrency twice.
Scott Minerd, CIO of global investment firm Guggenheim Partners, presented possibly the most optimistic Bitcoin assessment when he spoke to Bloomberg on December 16. “Our basic work shows that Bitcoin should be worth about $ 400,000,” Minerd said.
His view is heavily based on bitcoin’s scarcity and similarity to gold. “Bitcoin has many properties of gold and also has an unusual value for transactions.”
While McCullough and other investors proclaim the virtues of Bitcoin, many institutional investors are doing the same.
Grayscale Investments and Bitcoin Custody Service
Grayscale Investments, a wealth management company, is at the forefront of providing custody services for wealthy Bitcoins.
In October, it was stated how Grayscale Investments obtained more than 40,000 Bitcoins for their customers. Still, Grayscale isn’t the only player in the field.
A total of 85,000 Bitcoins worth about $ 695 million were purchased by CashApp, a mobile payment service owned by both Grayscale and Square. A total of 163,800 Bitcoins were mined during the same period (1st quarter of 2020), which means that both companies purchased the equivalent of about half of the total Bitcoin mined in that quarter.
Similarly, Fidelity Digital Assets, which provides custody services to investors, shows that it is connected to this sector. On November 24, Christine Sandler, head of sales and marketing at Fidelity Digital Assets, said she saw great progress towards adoption of Bitcoin and other cryptocurrencies from institutional investors.
“What we saw in 2020 was a broader adoption of this ‘digital gold’ narrative. This adoption began to resonate in other institutional investor pockets, namely hedge funds, ultra-high net worth individuals, and then family offices. That’s why we’ve seen the base widen in terms of the types of customers we see interacting with the ecosystem, ”she says.
On December 16, two other big events hit the crypto custody industry.
First, Northern Trust and SC Ventures, the innovation and venture arm of Standard Chartered, reportedly launched Zodia Custody, a cryptocurrency chief for institutional investors.
In addition, American Express, one of the world’s largest financial companies, has invested in FalconX, a platform for cryptocurrency trading institutions.
These events raise concerns that Bitcoin will soon fall short, as such large amounts of cryptocurrency are being taken over by wealthy investors and giant corporations.
Bitcoin Halving: Squeezing the Supply
Bitcoin halving probably had an impact on Bitcoin’s price. The Bitcoin halving happens every four years, halving the number of cryptocurrencies miners buy as they add new blocks to the Bitcoin blockchain. So from May, only half as many Bitcoins had been created as in previous months.
“With the halving of Bitcoin in May, this supply flow has halved, meaning that fewer Bitcoins have been put up for sale by miners, which could contribute to the shortage of supply and hence the rising Bitcoin price,” says Elias Strehle, a researcher at the Blockchain Research Lab.
Bitcoin halving has an impact on mining and the price of Bitcoin.
This is the basic economy and not just limited to Bitcoin mining or the wider cryptocurrency industry as a whole. If the demand remains the same but the supply decreases, this will put upward pressure on the price.
It is possible for PayPal to purchase a significant amount of Bitcoin and tighten the supply further. The result from the company that PayPal uses to buy Bitcoin reveals that it may be buying up to 70% of the newly minted Bitcoin. This figure is above the large sums Grayscale and Square collected.
All of these reasons have had a positive impact on the price of Bitcoin over the past few months, but there is also one factor that is best suited for mass Bitcoin adoption.
PayPal and Crypto Currency
International payments giant PayPal announced this October that it will launch cryptocurrency trading features on its platform. Later yesterday, it confirmed that all of its customers can now access Bitcoin and plans to bring this feature to Venmo.
This launch included the ability to buy and sell four cryptocurrencies: Bitcoin; Bitcoin Cash; Ethereum; and Litecoin.
As financial industry giants such as MicroStrategy, Square and Grayscale Investments have contributed to the perception of Bitcoin as a legitimate asset, PayPal’s arrival on the scene holds the most promise for Bitcoin’s hopes of reaching mainstream.
“I bought Bitcoin on Paypal, they made it very easy. “This is how Bitcoin becomes mainstream,” said a Twitter user under the pseudonym BitcoinBF.
PayPal will also allow its users to spend their crypto at any merchant that accepts PayPal. “Early next year, we will allow cryptocurrencies to become a source of funding for any transaction that takes place across all of our 28 million traders,” said Dan Schulman, CEO of PayPal on November 23.
PayPal used to question Bitcoin’s suitability as a currency, but now it’s just one of many big names to jump on the Bitcoin caravan. Since everyone is entering domains, it is not surprising that the price of Bitcoin is burning.