2020 was certainly an unpredictable year. But while the past year has been a rollercoaster ride of highs and lows in the stock market, bitcoin maintained a steady increase in price.
Traditional finance professionals and crypto enthusiasts alike were shocked to see bitcoin top $30 000 in 2020, indicating that the cryptocurrency is more than just a trend or an edgy investment choice. Once viewed as an outlier with unreliable foundational support, bitcoin is now becoming more accepted among old-fashioned banking industries and government officials.
Institutional investment in bitcoin continues to grow
Despite bitcoin’s strong prospects and backing from many well-established investors, there are still some sceptics who compare bitcoin’s rise to the 2017 crash. Back in 2017, investors poured money into bitcoin due to a media-fuelled frenzy about the new cryptocurrency trend. Today, there is much evidence people are steadily becoming more comfortable with the idea of investing in crypto. For example, 40% of millennials surveyed said that they would strongly consider investing in cryptocurrency in response to the recession.
Despite the fact that the cryptocurrency has reached new records, there are no signs of this price spike being artificially inflated or indicative of a bubble soon to burst. Consider that institutional investment is at an all-time high, despite little attention from the mainstream media.
Central banks and even governments are rushing to adopt their own cryptocurrency, the result of a deeper understanding of the strength of block chain technology. Furthermore, the US dollar, held as a currency standard across the world, is being printed at levels never seen before. This has caused many in finance to predict future worldwide inflation of fiat currency, with bitcoin viewed as a more stable alternative.
Venmo, PayPal and Square have invested and integrated their technology with bitcoin in 2020, with the latter two companies swallowing up more than 70% of newly-minted bitcoin. Publicly-traded business consulting firm MicroStrategy owns 38 250 bitcoin, bought for $250 million in 2020 and now worth about $1.2 billion. Fund manager Ruffer Investment Management has moved around $675 million of its clients’ funds into bitcoin, a move that surprised many in the traditional finance world.
Finally, even global financial giant American Express recently announced its investment in crypto trading startup FalconX. It’s clear that the ‘big boys’ of finance and credit are becoming more eager to hop on board the cryptocurrency train, with bitcoin remaining the fuel behind the momentum.
Bitcoin gets a boost from governments worldwide in 2020
The United States government has made it clear that it is planning the adoption of a “digital dollar,” which will be available to all US citizens via what are called FedAccounts. Although the digital dollar was very clearly inspired by bitcoin, it’s unclear whether the currency will be powered by blockchain technology or traditional banking databases.
US Congressman Paul Gosar recently introduced the Cryptocurrency Act of 2020, claiming that it’s “crucial that America remains the global leader in cryptocurrency.” This enthusiastic governmental support is a far cry from the associations with terrorism and drug trafficking that initially plagued the cryptocurrency trend. It has no doubt played a large role in catapulting bitcoin’s value in 2020.
Although the type of cryptocurrencies planned by the governments of the US, China, Canada, Russia and the EU (just to name a few) are different from bitcoin, it’s a strong signal to investors that cryptocurrency is becoming an accepted form of trade. Indeed, crypto going mainstream is one of the biggest trends that we are seeing in the digital trading world. Unclear or non-existent regulations still remain a concern for potential bitcoin investors, however.
Once we have a better idea of which path international governments will take towards controlling the trade of bitcoin, predicting the future of cryptocurrency will be much easier.
The biggest boost given to bitcoin from governments, however, has been the clear indications of widespread inflation that is likely coming in the future. Investors with large sums of money represented by fiat currency are uneasy about the security of their assets. For many, the reliability and decentralisation of bitcoin are a dream come true to bring stability to their portfolios.
Bitcoin has the potential to increase drastically in value in the next couple of years, and it will likely continue to line investors’ pockets and inspire governments to follow suit by adopting similar technologies.
Don’t be mistaken, however: there are still challenges to come for bitcoin and other cryptocurrencies.
Just this month, Coinbase was forced to suspend margin trading because of shifting government regulations. This news is a reminder that a lot of bitcoin’s adoption hinges on cooperation from the government, which are unlikely to want to see its financial power and influence waning. It’s clear that bitcoin’s perceived value is in part dependent on governmental reactions, meaning that the government can be the worst enemy or best friend of bitcoin investors.
What will 2021 have in store for bitcoin?
While government regulations may cause bitcoin to dip in price, it’s the upcoming inflation caused by unprecedented printing of money by the US Federal Reserve that is ultimately the main driver of bitcoin’s value.
Experts predict that there will continue to be a constant tug-of-war between the two, with the former causing decreases and the latter causing increases in value.
Still, the future for bitcoin and thus other cryptocurrencies is very bright. Many high-profile crypto enthusiasts predict that bitcoin will reach a value of $500 000 in the coming years. And while these predictions are best-case scenarios, they look more and more plausible considering bitcoin went up more than 300% in 2020 alone.
Tim Fries is a US-based journalist focusing on developments in the crypto space, and co-founder of The Tokenist