Why Is Bitcoin Going Up?
Why Is Bitcoin Going Up?
Bitcoin price movements are feral; they often seem random and are driven by the same fundamental catalyst as traditional markets. As of now, the value of Bitcoin has increased by 195%, topping to $23,000, but what is causing this meteoric rise?
Through this article, let’s find out why is bitcoin going up? And why are the traders so optimistic about Bitcoin even if it has surpassed an all-time high.
Some of the main catalysts that are driving Bitcoin’s price high are-
Inflation And The Reduced Purchasing Power Of The Dollar
Ever since the gold standard was removed in 1971 by Richard Nixon, the value of circulating dollars has undeviatingly increased. Before the Coronavirus presence, the total money supply increased from $273.4 billion to over $4 trillion. And after that, the total capital supply has expanded from $4 trillion to over $6.5 trillion, primarily due to coronavirus-related stimulus bills.
Government is in the midst of passing another stimulus bill of around $1 trillion to help those suffering from the pandemic. If this bill gets passed, it means that over 50% of the world’s total supply of US dollars will have been printed in 2020. The growth in money supply has significant perpetual implications on the Dollar’s purchasing power.
The stimulus spending has already led many to fear more excellent inflation rates. To shield against this inflation, the investors who invest in bitcoins are looking for options that either maintain value or appreciate the value. Over time, this quest for a store-of-value asset to hold against inflation has brought them to Bitcoin.
But why Bitcoin?
There is much capital that is observed as a store-of-value. Possibly the most common capital that quickly comes to mind are precious metals like gold or platinum that have a limited supply. In the case of gold, we know that it has a scarce supply, but we are not sure about how much it exists. And though it may seem far-fetched, gold exists outside of earth and may one day be available via mining as technology advances.
How This Matters To Bitcoin
This is where Bitcoin metamorphosed itself. It is already written into Bitcoins (BTC) code how many they will exist. So we can verify with certainty how many exist and how many will be present in the future. This makes BTC the only capital on the planet that we can certify has a finite and fixed supply.
The amount of monetary spur that has been supplied into the system due to the covid pandemic to stimulate the economy and put things on track again has caused traders to think about store-of-value and what causes inflation hedge or how they should safeguard their portfolios.
Thus, Bitcoin prices going up can assuredly be attributed to fears of inflation, and it is used as a barricade against it.
To understand more about why BTC has a verified finite limit, it is crucial to understand the mechanism used to build its code known as halving. Every 210,000 blocks that are mined or the reward is given to miners who mine bitcoins for processing BTC transactions is reduced in half.
Thus, built into BTC is a synthetic form of inflation because a reward of Bitcoin awarded to a miner adds a new BTC into circulation. The inflation value is cut in half every four years, and this will continue until all 21 million BTC are released into the market, there are 18.5 million bitcoins in circulation.
Why is this important?
In bitcoin, each halving maximizes the assets stock-to-flow ratio. Here, a stock-to-flow ratio means available stocks circulating in the market relative to the newly coming stock that are distributed in the market every year now, since we know that after every four years the stock-to-flow ratio, or present circulation relative to new supply, this metric can be calculated for the future.
Since the launch of Bitcoin, its price has followed close to its stock-to-flow ratio. And thus, each BTC has experienced a significant bull market that has crushed its previous all-time high. The first halving of BTC occurred in 2012; the increase in bitcoin value was about $12 to almost $1,150 in a year. The second halving occurred in 2016; the price at that time was about $650. BTC third halving occurred in May 2020, and its value has increased by nearly 120%. BTC price increase can also be assigned to its stock-to-flow ratio and deflation.
As mentioned earlier, the value of BTC as a store of value has increased significantly in 2020, but not only with retail traders. Many public and private institutions have been collecting BTC instead of cash in their treasuries.
The current investors include Square(SQ), Microstrategy (MSTR), and recently the insurance giant MassMutual, among others. A large amount of investment suggests high confidence among these institutions that bitcoin as an asset will be a good shield against inflation. Apart from this, many companies are starting to provide services for them. For example- PayPal has decided to allow crypto access to its millions of active users.
From its primary use as a method to purchase drugs online to a new monetary medium that offers scarcity and ultimate transparency with its immutable cash flow, Since its inception in 2009, bitcoin has come a long way.
Even after realizing that Bitcoin and its respective blockchain technology can be used for much more than just the silk road, it was still impossible for the ordinary person to get involved in previous years. Because the wallets, keys, exchanges, the on-ramp were very confusing and complicated.
But, today, its access is way more accessible than ever. Its licensed and approved exchanges are easy to use and are in abundance in the US. Plus, the confidence shown by big institutions by their offering of crypto-related products and blatant trading into Bitcoin speaks volumes.
With BTC crashing through its all-time high value and having more institutional and infrastructural investment than ever, it doesn’t seem to be going anywhere in the near future. You trade bitcoins from one of the finest platforms in the UK like Pattern Trader.