What is Behind the Increase in the Price of Bitcoin?

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With Bitcoin topping $60,000 for the first time, the talk of it hitting $100K is growing louder. There is a whole raft of reasons behind this surge, chief among them being a weaker U.S. dollar and a noticeable relaxation in central bank monetary policy.

The rally of the last year, which was stimulus-fueled, has caused many investors to ignore any signs of speculative enthusiasm.

Investors in the cryptocurrency, including some of the top hedge fund and money managers in the country, are betting Bitcoin could at least quintuple in value, hitting $100,000 within the year. It’s a bet that is not without its skeptics who think the volatility of crypto makes it a speculative asset, unlike the store of value of gold or other precious metals.

Stuff of Legend

Antoni Trenchev, co-founder and Managing Partner of London-based crypto-lender Nexo has opined that the resilience of Bitcoin is proving to be “The stuff of legend.” He went on to say that every correction provides the market with an opportunity to reset and restart an upwards move.

Increasing Interest in Bitcoin

In the past year, Bitcoin prices have risen dramatically. At the start of 2020, Bitcoin was trading at a little under $7,000. The price is now hovering around $60,000 among signs of ever-increasing institution demand as well as speculative interest.

Advocates of the crypto champion it as a store of value, not unlike gold. As is true with gold, Bitcoin can act as a hedge against a weaker U.S. dollar and inflation. Others take a different stance. They argue the rally is nothing more than a giant bubble fueled by stimulus and they predict the bubble will burst just as it did during the boom-and-bust cycle of 2017-18.

Participants as well as some strategists are pointing to a wider take-up as one possible reason why this bull run is different. An example is the $1.5 billion investment made in Bitcoin by Tesla and CEO Elon Musk’s endorsement of the digital asset. Mike Novogratz, billionaire investor involved in Galaxy Digital Holdings Limited, has stated that Bitcoin could hit $100,000 by year’s end.

What is Driving the Price of Bitcoin?

What is driving the meteoric rise in the price of bitcoin? There is no single reason for its appreciation, but, for what was not too many years ago something seen as little more than a scam, has matured into an investment which has become known to all by famous name investors, large financial institutions, and retail investors alike.

Reduced Purchasing Power of the USD and Inflation

Since President Nixon removed the U.S. from the gold standard in 1971, the amount of dollars in circulation has steadily increased. From 1975 through early 2020, the total money supply was $273 billion. As a result of the coronavirus stimulus bills, the money supply has risen to over $6.5 trillion.

Just within the last few days, Congress passed another bill aimed at helping those hardest hit by COVID 19. There is no getting away from the fact that the increase in money supply will help those in financial difficulty due to a lack of employment and shuttered businesses.

To hedge against inflation, investors are seeking assets that maintain, or increase in value. This search has brought investors to Bitcoin and trading robots that, after analysis, facilitates automatic cryptocurrency and forex trading.

Unlike U.S. dollars, there is a limit on how many Bitcoin will ever exist. Bitcoin is the only asset that can prove it has a finite and fixed number.

A significant part of the cryptos price appreciation can be attributed to inflation fears and its use as a hedge. There appears to be a further printing of money from the recently approved stimulus package, as well as rumblings of student loan forgiveness.

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WeInvests is a financial portal-based research agency. We do our utmost best to offer reliable and unbiased information about crypto, finance, trading and stocks. However, we do not offer financial advice and users should always carry out their own research.

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