Bitcoin (BTC) started at $ 7,200 in 2020. It ended the year at nearly $ 30,000, up 296%. (By comparison, the Nasdaq rose 43% in 2020, the S&P 500 rose 16%, and the Dow rose 7%.)
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The increase continued at full speed until 2021. It took 10 years for Bitcoin to hit $ 20,000 on most exchanges on December 15th. Then it only took 17 days to hit $ 30,000. (It took the Dow Jones nearly three years to take the same step.) Bitcoin broke through $ 30,000 for the first time on Jan. 2, then climbed to $ 32,000 just hours later. It cracked $ 35,000 on January 5th and hit $ 40,000 on January 7th.
The tide has also raised altcoins, bringing total crypto market cap over $ 1 trillion for the first time.
The 2020 Bitcoin Bonanza can be traced back to a convergence of many positive factors as well as a convergence of narratives.
In the past, Bitcoin was often criticized by skeptics for not being useful as real currency – it cannot be spent in most places. In 2020, investors decided they didn’t care and they didn’t want to spend their bitcoin anyway. Institutional firms poured in, viewing cryptocurrencies as a legitimate asset to keep in their portfolio.
At least the consensus now seems to be: Bitcoin won’t go away. It has been around for 10 years and will continue to do so.
The same cannot be said of any of the other multitudes of cryptocurrencies (“Altcoins”) with absolute certainty, except perhaps Ether (ETH), the token of the Ethereum network. (XRP, the token developed by Ripple Labs, has been among the top four cryptocurrencies by market cap for years, but is now under fire after the SEC sued Ripple Labs for claiming an unregistered security offering valued at 1.3 billion US dollars.)
If the bitcoin price spike in late 2017 was driven by crypto newbies shopping their way without doing their homework, the 2020 drive was fueled by institutional purchases. While new private investors are buying Bitcoin again, many individual Wall Street names and consumer-facing payment companies have warmed up to crypto as well. All of this happened against the background of the COVID-19 pandemic, in which the central banks paid out stimulus money – a scenario that reminded of the scarcity of Bitcoin and its attractiveness as “digital gold”, a hedge against inflation.
The story goes on
People pass in front of a Bitcoin Change cryptocurrency shop near the Grand Bazaar on December 17, 2020 in Istanbul. (Photo by Ozan KOSE / AFP) (Photo by OZAN KOSE / AFP via Getty Images)
Institutional investors storm in
According to CoinShares Research’s December 21 crypto inflow report, Wall Street firms pumped $ 5.75 billion into digital asset funds, up 660% from 2019.
The surge has propelled Grayscale Investments, the largest crypto asset fund, to $ 15.3 billion in assets.
In the second quarter of this year, more than a dozen well-known Wall Street firms, including ARK Invest, cited the SEC citing new investments in GBTC, Grayscale’s Bitcoin Investment Trust, a publicly traded fund that is pegged to the price of Bitcoin by JP Morgan Strategists in November as a leading indicator of institutional sentiment.
“A failure by the Grayscale Bitcoin Trust to receive additional inflows in the coming weeks,” wrote JPM strategists, “would cast doubt on the idea that institutional investors such as family offices have embarked on a trend to view Bitcoin as digital gold. “As we can see now, GBTC did not fail to receive additional inflows in December.
So much bitcoin is now held by long-term institutional investors that blockchain research firm Glassnode estimates that only 22% of existing bitcoin is in circulation for trading, which could have a positive impact on price in 2021 but also increase volatility could.
The titans of Wall Street change their tune
Along with the surge in institutional interest, individual Wall Street investors known for their influence have changed their public opinion on Bitcoin.
In May, hedge fund titan Paul Tudor Jones said he held almost 2% of his portfolio in Bitcoin. He ranked Bitcoin 4th on his list of inflation hedges and called it a “big speculation”. This month, he expanded his bullish stance in an interview with Yahoo Finance, arguing that as cryptocurrencies spread, Bitcoin will become even more differentiated as a “precious” coin: “the first crypto, first mover in a world so compressed . It has this historical integrity in digital currencies that it will always have … And due to its limited supply, this could be the precious crypto. “
In November, billionaire investor Stan Druckermiller said he owned some bitcoins and told CNBC he owned a lot more gold than bitcoin, but “if the gold bet works, the bitcoin bet is likely to work better because it’s thinner, more illiquid and has a lot more beta on that. ”Bill Miller, veteran investor and former CIO of Legg Mason, added his name to the chorus, saying he expects all major banks to hold cryptocurrency soon and that he will hold 30% of his own hedge fund portfolio in Bitcoin holds.
Even Bridgewater’s Ray Dalio, who said earlier this year that he sees major problems with cryptocurrencies, including the potential for governments to “ostracize” them, said in a Reddit AMA this month that bitcoin “could serve as a diversifier for gold “And that investors” should own some of these types of assets “.
Of course, many prominent bears remain bears. The economist Nouriel Roubini, nicknamed “Dr. Doom, ”reiterated on Yahoo Finance this month that he believes Bitcoin is“ not a currency … not a stable store of value … not even an asset ”and predicts that the“ hyperbolic bubble will burst ”.
PayPal, Square, Visa, JPMorgan, Fidelity & more
PayPal (PYPL) and Square (SQ) are credited with intensifying the surge in 2020.
On October 21, PayPal announced that it would soon allow Bitcoin purchases in its PayPal and Venmo digital wallets (as well as paying with Bitcoin, although most people probably won’t want to spend their cryptos if the price goes up). The news sent PayPal stock skyrocketing along with Bitcoin price in what was hailed as a major milestone: a consumer-centric payments company signaling its trust in Bitcoin.
Square has been fully into bitcoin since 2018 (especially powered by bitcoin maximalist CEO Jack Dorsey) when it added bitcoin buying and trading to its cash app. That year, Square took the even stronger move of buying $ 50 million worth of Bitcoin to keep it on its balance sheet. (Cloud company MicroStrategy bought more than $ 1 billion in bitcoin this year.) Square’s bitcoin revenue rose 618% to $ 1.63 billion in the third quarter, and bitcoin profits in the third Quarter by 1,500% to $ 32 million. Square shares rose 246% in 2020, and Bitcoin was part of, if not the whole story.
But it’s not just PayPal and Square.
Visa (V) approved a range of Visa-branded Bitcoin reward credit and debit cards last year and will be support for Circle’s USDC stablecoin (a cryptocurrency pegged to the value of the US dollar) Include customer network. Visa tells Yahoo Finance that it is “actively working with over 25 digital currency companies on a variety of Bitcoin-related products and services, with cards being just one area.”
JPMorgan Chase (JPM) has similarly warmed up for cryptocurrency (despite CEO Jamie Dimon’s public comments), first by introducing an internal JPM token last year, then this year by allowing customer transfers to and from the US -Crypto exchanges Coinbase and Gemini have been approved. Fidelity, which started mining bitcoin in 2016, launched its first bitcoin mutual fund for institutional clients last summer; Fidelity Investments CEO Abby Johnson told Barron’s that Fidelity’s bitcoin ventures were “incredibly successful”.
All of these examples represent an obvious change in sentiment from just a year ago, which is why many in the crypto space insist this time is different than the 2017 price run.
The COVID-19 pandemic and the government’s response to it gave Bitcoin its dream scenario. When the Fed needs to step in, crypto flag-throwers will point to digital gold, free from government interference and quantitative easing. (The supply of Bitcoin will be limited to 21 million coins, with around 18.5 million coins created so far.
“There is so much uncertainty about this pandemic, but one thing that seems almost certain is that if you print trillions of dollars more paper money, it will skyrocket Bitcoin and other cryptocurrencies,” said Dan Morehead, CEO of Crypto Investment firm Pantera Capital in August. “Gold will go up, Bitcoin will go up. It is a hedge against the devaluation of the paper currency. “
In November, as the pandemic dragged on, more and more investors were looking for protection, and as Chainlink co-founder Sergey Nazarov said, “This pursuit of safety leads them to look for alternatives. The modern global financial system is not very well placed to help people fight inflation, while alternatives like Bitcoin exist. The impending inflation worries people more and more, and inflation as a mechanism for depreciating assets leads to people looking for security. “
The next question for the crypto markets in 2021 will be what a President Biden administration means for crypto politics (maybe nothing) and whether Bitcoin will actually be a “safe” investment.
Daniel Roberts is an editor at Yahoo Finance and has been involved with Bitcoin since 2011. Follow him on Twitter @readDanwrite.
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