By Isabella Diez
The year 2020 has been quite a year for cryptocurrencies. Bitcoin surged, trading above $15,000 during the US election week, the highest in 3 years.
Created in 2009, Bitcoin is a virtual currency and is the most popular and largest cryptocurrency. The creator of Bitcoin is unknown but goes by the alias Satoshi Nakamoto. Each individual Bitcoin is mined. This is done with computers which solve complex and difficult mathematical equations. As the problems are solved the following equations become more and more difficult. This allows Bitcoin to become harder to come by.
Bitcoin’s landscape has experienced an impressive change this past year. The value of these digital tokens has more than doubled in 2020, and most dramatically increased within the past month. This development began with PayPal and Square enabling Bitcoin and other cryptocurrencies such as Ethereum and Litecoin, to be used as a payment and investment option this past October. This change now allows users to buy and sell using Bitcoin. Solidifying Bitcoin as a viable and trusted source of payment contributed to the significant price increase we saw this year.
The US election also affected the value of Bitcoin and other cryptocurrencies. The uncertainty of the presidential election caused the US dollar to weaken which in turn increased the value of Bitcoin. Since Bitcoin is unregulated by central banks, investors are abandoning the dollar and moving towards cryptocurrencies. This surge was unexpected given that prices were below $5,000 in the middle of March of this year. Demand for Bitcoin became apparent in the aftermath of the contested US election. Expectations of further government spending and a lax monetary policy also contributed to the rise of Bitcoin.
Managing director of Grayscale Investments, a digital currency asset management firm, Michael Sonnenshein states, “Bitcoin comes out stronger after each challenge,… People are looking at bitcoin as a store of value and inflation hedge.”
Gold has also benefited from the weakening of the US dollar. Earlier this year gold prices were above $2,000/ounce which hit record highs. This was a 30% increase solely in 2020. Investors are looking to take advantage over the weak US dollar during this time by investing in gold.
JPMorgan says, “The potential long-term upside for Bitcoin is considerable as it competes more intensely with gold as an ‘alternative’ currency we believe, given that Millenials would become over time a more important component of investors’ universe.”
Bitcoin, unlike gold, is mined virtually, but just like gold, there is only a finite amount available. This limited supply protects investors from inflation unlike fiat currencies such as the dollar which can be printed by central banks.
Projections put Bitcoin trading above $20,000 topping the highest record since 2017 and even tripling in the near future. Bitcoin may even be favoured to use over gold by investors.
The understanding that Bitcoin is a viable form of payment in addition to being a stable, appreciating asset, are keys to why Bitcoin is seeing success. Will you consider investing in Bitcoin this year?