Why the price of Bitcoin hit a new high
Yuan Yang
A large number of institutional investors have entered the market, mostly oriented towards asset allocation.
Bitcoin without national credit endorsement is always difficult to get rid of the brand of speculation.
Ordinary investors still need to be cautious when investing in Bitcoin.
Counting the performance of various assets in 2020, the rise of cryptocurrency Bitcoin can be called a "one rider": the S&P 500 index rose by 16.5% for the whole year, the Shanghai and Shenzhen 300 index rose by about 27.2%, spot gold and silver Rise by about 25% and 48% respectively... In contrast, Bitcoin's cumulative annual increase of nearly 300% is undoubtedly the most eye-catching.
As of January 3, 2021, the Bitcoin transaction price stood at 30,000 USD for the first time, and the total market value exceeded 600 billion USD, setting a new record high.
In March 2020, the price of Bitcoin, which had just experienced a sharp drop at that time, remained near $5,000.
Within a year, Bitcoin's rise is so amazing, the main reasons may be the following three aspects.
First, from the perspective of its own attributes, Bitcoin is a typical scarce asset.
Unlike traditional currencies, Bitcoin has established a total issuance of 21 million since its birth in 2009, and cannot be increased infinitely, so its supply is rigid.
At the same time, as the number of bitcoins being mined gradually increases, the difficulty of mining to obtain bitcoins is also increasing.
At present, an ordinary mining machine needs more than 4 years of uninterrupted mining to produce a bitcoin, and the power consumption of the mining machine alone exceeds 100,000 kWh.
In addition, in May 2020, Bitcoin completed the third halving of the output of Bitcoin, that is to say, the Bitcoin rewarded for mining a block has been reduced from the original 50 to 6.25, which stimulated the increase in the price of Bitcoin.
Second, in 2020, the generally loose monetary policy around the world has pushed up inflation expectations, and investors' demand for safe-haven Bitcoin has increased.
In the past year, due to the impact of the new crown pneumonia epidemic, the world economy has suffered a severe recession. Central banks in many countries have generally adopted methods such as lowering their benchmark interest rates and expanding the scale of debt to boost the economy.
For example, the Fed's policies such as unlimited quantitative easing have made the dollar supply excessively abundant. In 2020, the dollar index fell by about 11.5% from the year's high.
Out of concerns about increased inflation in the medium and long term, and to avoid the loss of nominal principal, many investors have turned to cryptocurrencies such as Bitcoin to hedge their risks.
In a sense, Bitcoin already has part of the hedging properties of gold and other assets.
Third, the implementation of blockchain technology and the increase in application scenarios of encrypted currencies have driven the demand for Bitcoin.
At present, the digital economy is developing rapidly, and new formats such as blockchain games and encrypted collections continue to emerge. Blockchain technology has expanded to financial fields such as savings, loans, and insurance.
On the one hand, the implementation of technology has increased the importance of Bitcoin as the "general equivalent" of digital assets; on the other hand, the increase in Bitcoin's own application scenarios has stimulated the enthusiasm of investors.
In October 2020, American mainstream payment platform PayPal announced that it allowed its platform merchants to choose Bitcoin as one of the payment methods. The price of Bitcoin rose by more than $1,000 a week after the announcement.
In the same month, DBS Bank, Singapore’s largest commercial bank, announced that it would provide cryptocurrency transactions.
Bitcoin has begun to gain the favor of institutional investors, listed companies, large banks and payment companies. This is also the obvious difference between this round of market and the previous one.
However, the entry of a large number of institutional investors is more oriented towards asset allocation.
Accompanying it is the increase in investment volume, which also means that Bitcoin, which has no value anchor, may experience greater price fluctuations.
For ordinary investors, this is not good.
At the same time, it should be noted that in my country, Bitcoin does not have the same legal status as currency, and cannot and should not be used as currency in the market.
As early as 2013, five departments including the People's Bank of China jointly issued a notice to prevent Bitcoin risks.
Bitcoin without national credit endorsement is always difficult to get rid of the brand of speculation.
Therefore, ordinary investors still need to be cautious when investing in Bitcoin.