Bitcoin: Why Its Value Is Soaring and Where Things Go from Here
The value of Bitcoin is booming at the moment, and with it, curiosity from the public is at all-time highs. In fact, as 2020 came to a close, the value of Bitcoin rose to a record high — $30,000!
Bitcoin’s surge isn’t linked to one factor — but debatably four. We’re going to discuss some of the major reasons crypto is so hot today.
What is Bitcoin?
Bitcoin is currently the world’s most valuable digital currency. Started in January 2009, it follows the ideas set out in a whitepaper by the pseudonymous Satoshi Nakamoto (the identity of this individual is still unknown).
Bitcoin isn’t tangible — it exists digitally and the balances are kept on a public ledger that everyone has access to. Bitcoin isn’t issued or backed by any banks or governments, nor are individual Bitcoins valuable as a commodity, they have no intrinsic use except as currency.
While government-issued currencies such as the US dollar can have their supply increased at will by central banks, Bitcoin has a fixed supply that cannot be inflated by political decisions.
This limit is hard-coded into the Bitcoin protocol (agreement) and cannot be changed. It creates scarcity, which ensures that Bitcoin increases in value over time.
Lastly, Bitcoin is traded on online cryptocurrency exchanges (such as MyConstant), but can also be sent, received and stored in digital wallets on smartphone applications.
Now that the crash course in Bitcoin is out of the way, let’s get into the reasons why it’s becoming a hot commodity and making some people very rich.
Four reasons why crypto is hot today
- A hedge against inflation
In a way, the economic environment today is similar to the one in 2009 when Bitcoin first came into existence. At that time, the subprime mortgage crisis triggered a massive stock market crash. People became leery of the banks and were looking for new ways to invest that didn’t involve government institutions.
Today — in response to the risk of economic collapse caused by the Covid-19 pandemic — governments the world over have been flooding the global markets with money created by central banks in order to boost spending and ‘save the economy.’
The problem with this, however, is that increasing the supply of money usually erodes its value and causes people to look for inflation-resistant assets to hold instead.
In this climate, Bitcoin has become a hedge against looming inflation and low returns on other types of assets.
- Mainstream and institutional adoption
The second factor comes down to increased acceptance of Bitcoin. I bet you didn’t know that you could pay for a Subway sandwich with Bitcoin (in Argentina that is).
Until recently, if you wanted to use your Bitcoin to purchase goods, you’d have to convert your Bitcoin into cash on a crypto exchange. This process varies in speed and doesn’t have ‘mass appeal.’
Now, however, things are changing and companies are allowing customers to use Bitcoin to pay for services.
Broadscale adoption of cryptocurrencies (like Bitcoin) has traditionally been held back by their limited utility as an instrument of exchange because of their volatility, cost and slow transaction speed.
In October 2020 though, things changed in a big way. Financial service providers, PayPal and Square’s Cash App began allowing customers to use Bitcoin and other cryptocurrencies as a form of payment — making Bitcoin even more mainstream and accessible.
PayPal* alone has over 26 million merchants around the world who will now accept digital currency. The merchants don’t even need to have a digital wallet as PayPal will convert the crypto into fiat for them.
Other companies such as Microsoft, Virgin Atlantic and AT&T are also accepting cryptocurrency as a form of payment.
*Side note: you can’t transfer crypto off the PayPal platform. You can only buy it within Paypal and hold it there.
- The rise of stablecoins
The third factor driving Bitcoin’s rise is stablecoins.
These crypto coins are pegged to a fiat currency (like the dollar or the euro). As the name suggests, these coins don’t have the same volatility as traditional cryptocurrencies because they’re closely tied to the government money that underpins them.
More recently, some online peer-to-peer lending sites have started using Stablecoins as collateral for loans. And their popularity has risen so much that even the US Federal Reserve is discussing a possible release of their own digital coin.
Moves like these are bolstering the strength of Bitcoin and giving the public more confidence in cryptocurrency.
- More ways to get into crypto
For over a decade, cryptocurrency has been mysterious and appealed to a very small section of the population. But now, things are changing and crypto is rapidly becoming a currency for everyone.
At MyConstant we like to think of ourselves as an onramp into the world of digital currency. Once you invest with us, you can transfer your USD into crypto and vise versa.
And if you wish to trade crypto and USD privately, you can do so using the app — Incognito — a fully private, decentralized exchange that powers financial, transactional anonymity for cryptocurrency holders.
The content in this article is intended to be used for discussion purposes only. Our writers try to ensure that the information is accurate and up-to-date. It’s important that you do your own analysis before making any investment based on your own personal circumstances.
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