There are several factors resulting from the pandemic that have affected the price of Bitcoin.
When the Covid-19 pandemic hit the world in early 2020, many sectors were affected. For example, there has been a decline in the hospitality and aviation industries due to travel restrictions and bans. Bitcoin was also hit by the financial impact of Covid-19 in March 2020. However, the effect was not permanent.
While gold was touted as a store of value, Bitcoin proved to be a serious challenger. The Bitcoin price increased during the Covid-19 period. The price rose from $ 5,000 in March 2020 to an all-time high of over $ 63,000 in April 2021.
Bitcoin is making headlines with new highs every month, fueling other assets. So what caused this massive price hike in the middle of the pandemic, you ask? Well, Covid-19 has proven to be a hidden boon for Bitcoin. So it accelerated the massive Bitcoin price surge.
Conversion to digitization
To contain the effects of Covid-19, many states resorted to introducing lockdowns and curfews. While this move has various negative effects, it has caused a shift into the digital world. While remote working was a trend in the pre-Covid era, the pandemic accelerated the use of digital technologies. Even ordering groceries for delivery is now the norm.
With people turning to the digital world, the acceptance of financial services from afar has also increased. This, in turn, has increased the adoption of Bitcoin. All you need is a good internet connection to buy and sell Bitcoin, which makes it a perfect option for international transactions.
Protection against inflation
The effects of Covid-19 have forced the government to provide stimulus packages to keep the economy afloat during the pandemic. In addition, central banks have resorted to printing more money, causing inflation and affecting people’s purchasing power. According to Forbes, the US Federal Reserve “tolerates” inflation above its 2% target, which signals tolerance for further price increases.
Bitcoin is therefore becoming a preferred store of value given the threat of inflation. Central banks also see the future in digital currencies. For example, the Chinese and Russian governments are planning to introduce digital central bank currencies (CBDCs).
Effects on traditional banking
The coronavirus has forced banks to close their doors. With traditional banking in decline, most people have had to look for financial options outside of the brick and mortar banks. Bitcoin has proven to be a great option for people looking to switch from decentralized banking systems and for those who are underserved by banks. For example, a bank account is not required for Bitcoin transactions.
With many investments adversely affected by the pandemic, investors are looking to diversify their portfolios. Bitcoin investments are proving to be a great investment choice due to their digital nature. As Bitcoin becomes a preferred asset, the demand grows significantly. This has helped drive the price to new highs.
Safe haven for investors
Gold has historically been a dominant safe haven. This means that in volatile markets, the asset will do well by maintaining its value even when the market turns bleak. Regardless of market fluctuations, the asset is safe. After Covid-19, Bitcoin is also developing as a safe haven for investors. Although initially hit by the pandemic, it has rebounded to see high prices. Bitcoin has endured and appreciated in value during the pandemic, making it a potentially perfect safe haven for investors.
According to the existing protocol, there can only be 21 million bitcoins. There are currently around 18.5 million bitcoins in circulation. In addition, the reward for verifying new Bitcoin blocks is halved every four years. Currently, the reward is 6.25 Bitcoin compared to 12.5 in previous years. As the reward decreases, so does the supply of new coins. The resulting scarcity is superior to that of precious metals.
With the increasing demand for Bitcoin, companies dealing with it have scaled up their operating technology. The transaction system is now seamless and fast. One of the main concerns was Bitcoin mining methods. Mining methods have been linked to carbon emissions. However, the miners are moving towards greener options like hydropower and solar powered methods.
Protection from political interference
Lockdowns due to the Covid-19 crisis have impacted trading activities, including the suspension of trading sessions. Investors worried about central banks and political interference in the market are moving to a decentralized market. Since Bitcoin is not centrally managed, it is an attractive option for investors looking to hedge political risk.
Newcomers to trading
The market was not only flooded with new HODLers, but also with new dealers. The pandemic resulted in billions of people working from the comfort of their couches or simply staying at home. With the time saved on the commute and few potential activities to spend their free time doing, many people have started spending more time online. Obviously, a large proportion of these people wanted some financial advantage, so online trading turned out to be an obvious choice. Although many people were real beginners in trading at the start of the pandemic, they were able to get started easily and quickly with resources available online such as broker education academies, various Udemy courses, subreddits such as Wall Street Bets, and a growing number of Discord channels.
One of the main drivers of the Bitcoin price increase is the influx of large investors, mutual funds and pension funds. The bull market is different from the one in 2017 and is dominated by retail investors driven by the fear of missing out (FOMO). Retail has been drawn to Bitcoin scarcity and disengagement from the global financial system.
Giant financial institutions like JPMorgan are setting up Bitcoin managed funds that aim to capitalize on their many opportunities. MassMutual and billionaire investors like Paul Tudor Jones have also invested heavily in Bitcoin.
Payment service providers are also jumping on the bandwagon. PayPal now enables its customers to buy and sell Bitcoin from their PayPal wallets. Visa has also worked with exchange firm Coinbase to provide Bitcoin-related debit and credit cards.
Bitcoin is now a reliable financial instrument
Covid-19 has laid the foundation for the further development of Bitcoin. First, it accelerated monetary development and the rise into the digital world. Individuals with no prior experience with online transactions had to adapt quickly as brick and mortar banks closed stores. With high mobility and scarcity, Bitcoin has become a new fixed asset and store of value.
Bitcoin has withstood the Covid storm
The connection between the Bitcoin appreciation and the Covid-19 pandemic is clear. Bitcoin has not bowed to the coronavirus pandemic as other sectors continue to be seriously affected. Its growth shows no signs of slowing any time soon. While volatility is still a major concern among investors, there is massive optimism among traders. For example, Citigroup predicts the price will hit $ 318,000 by December 2021.
However, consumer behavior has changed significantly. Here’s the point: Bitcoin mainstream adoption will continue as global digitization accelerates.
This is a guest post by Michael Kuchar. The opinions expressed are solely their own and do not necessarily reflect those of BTC, Inc. or Bitcoin Magazine.
The views and opinions expressed herein are those of the author and do not necessarily reflect those of Nasdaq, Inc.