It is astonishing to see that the volatile digital currency has broken through the $20,000 mark on December 16, 2020. In 2017, Bitcoin had almost brushed this mark but had plunged after a couple of weeks below $3,300. Bitcoin and other digital currencies are considered unreliable at best because their price fluctuates drastically.
Many people are cautious of the variations that can occur in the values illustrated by cryptocurrency exchange sites. However, the obstacles that curb cryptocurrency growth offered no resistance this year as Bitcoin enjoys an all-time high in its value.
Current data metrics show that very few bitcoins are to be purchased at this period. However, a great milestone has been achieved by this currency even if the future remains uncertain.
Here are some reasons as to why Bitcoin has surpassed $20000:
1. A Decrease in the Purchasing Power of the US Dollar
With the advent of the pandemic, there has been a rise in the US government’s financial expenditures, as Congress suggested passing a prompt bill of 1 trillion dollars. If this bill is passed, it would mean that nearly 50% of the world’s total supply of US dollars would be released in 2020.
This fiscal policy will affect the purchasing power of this currency. Many businesses are fearing the outcome in terms of inflation rates and are finding ways to shield themselves. This is where Bitcoin plays an essential role, as it has a fixed supply and limit.
As a result, a number of companies have invested in Bitcoin, hence causing enhanced strain in the supply. As there is a known limit for Bitcoins, the demand for the currency has increased, thus increasing the value of Bitcoin sharply (20,000 dollars at present!). Inflation has also played a part in its appreciation.
2. The Drop-in Exchange Reserves
Satoshi Nakamoto introduced the concept of digital currency via Bitcoin in 2009. When he and his group of colleagues made the framework of this currency, its code could store a maximum of 21 million coins.
From this, it can be deduced that only 21 million coins exist up to this date. At present, 18.5 million are in circulation, or approximately 90% of that total. This shows that the suitable supply of this currency is descending rapidly.
3. Effect of Halving Method
In the digital currency Bitcoin, is an artificial system of inflation called Halving, where a bitcoin given as a reward to a miner is added into the main circulation. Until all 21 million bitcoins are not supplied, this inflation rate is halved after every 4 years.
The growing quantity of the US currency and rising inflation is depreciating its value with time. However, in Bitcoin, each halving increases its stock to flow ratio. An increase in this ratio means that the resource is very scarce, hence its value doesn’t decrease.
Since Bitcoin’s initiation, its price varies side by side with its expanding stock to flow ratio. With every halving, Bitcoin has seen incredible growth in the market, exceeding its pre-halving value.
In November of 2012, the first halving saw growth from $12 to approximately $1150 in a year. In July of 2016, the second Bitcoin halving saw a spike where it increased from $650 and had almost reached $20,000 on December 17, 2017.
Then as a year passed, its value had dropped to $3200. This shows a staggering profit of almost 400% compared to the pre halving price in 2016. The third halving occurred on May 11, 2020, and its cost has enhanced by nearly 120%.
If Bitcoin continues on this path, investors are looking at profitable growth in the near future.
4. Reservations of Bitcoins by Institutions
The rise in Bitcoin’s store of value can’t be attributed solely to retail investors. Several public and private organizations are adopting Bitcoin rather than cash for their financial reserves.
Investors such as Square Inc., an IT services industry, MicroStrategy, an Internet marketing company, and MassMutual, an insurance company, have joined other enterprises by using cryptocurrency. Currently, 1,151,618 bitcoins with a total cost of $30,466,287,173 have been bought by different institutions, with Grayscale’s Bitcoin trust obtaining the highest number of bitcoins.
This signifies that maybe investors are confident that Bitcoin will guard them against inflation and appreciate the values of Bitcoin. Besides companies investing, several companies have started to provide services for this digital currency.
PayPal recently announced that its users would be able to buy bitcoins and other cryptocurrencies such as Ethereum. The Cboe global trade company and CME group are planning to introduce cryptocurrency services by 2021. Various companies are attempting to adopt the technology of this cryptocurrency.
Governments and Central Banks around the globe are realizing the potential behind a central bank digital currency. Thus, governments are also looking for modern methods of transactions rather than paper money. Overall, this shows the wide range of possibilities for its use.
5. Development in the Usage of Cryptocurrencies
Bitcoin has gone through various stages of implementation after its initiation in 2009. It was first used for purchasing drugs through the Internet and now has become a means of digital currency. With its scarce flow and limited resource, it gives the user the advantage of total secrecy.
Even after discovering the numerous ways to use other than the Silk Road, it was still difficult for an average person to leverage this technology. Wallets, keys, and exchanges were complicated to access.
Whereas, nowadays, this technology is easily accessible. Certified and controlled exchanges are simple to use in the US, such as Coinbase. Numerous third-party organizations provide storing facilities of cryptocurrencies for those who aren’t comfortable with this technology. Several places are now adopting the use of digital currencies to attract new audiences and boost growth.
Many major organizations are investing in crypto-related services and digital currencies. This proves that the role of cryptocurrencies in the marketing realm cannot be neglected. With the amount of support and investment it is receiving, it is predicted that Bitcoin will surpass the record that it has set this year, making its growth unstoppable.
Shaheryar provides ghostwriting and copywriting services. His educational background in the technical field and business studies helps him in tackling topics ranging from career and business productivity to web development and digital marketing.