Bitcoin's digital currency rose in value at the end of 2020, thanks to increased investor demand for it, but its volatility is also worrying, so will it maintain its rise or burst its bubble?

In a report published in the French newspaper Le Parisien, writer Damien Licata Carres says that the first cryptocurrency that appeared in 2009 set a record, in light of an economic climate affected by the health crisis caused by the Corona virus epidemic.

Investing in safe havens like gold was a tempting idea, but there was another tendency towards Bitcoin, whose value has increased dramatically, as it reached more than $ 40,000 in recent days under the influence of high demand.

It is difficult to definitively decide whether this is a temporary boom or a real financial revolution, because this virtual currency has known fluctuations in its short history that have questioned its viability.

Bitcoin doubled in 2020

According to Kathryn Casamata, a professor of finance at the Toulouse School of Economics, "scarcity creates value. The total Bitcoin supply in circulation is limited to about 21 million units since the system was designed, and as with any asset, the price rises when demand increases."

Therefore, the reasons for these sudden purchases must be researched. According to the analysis of Yves Laurent Keane, president of CoinPlus, a startup in Luxembourg, “Bitcoin goes through development stages every 4 years, and after it lived through the regulatory phase, it entered the year 2020 a phase of approval. Huge. "

For her part, Catherine Casamata says that more and more people are buying Bitcoin "because the value of the currency is related to the ease of use and more purchases with it."

There are also other parties that have boosted the value indirectly. For example, many online banks suggest investing savings in them.

In October, online payment giant PayPal launched a cryptocurrency buying, selling, and payment service that will ensure its 350 million users and tens of millions of partner merchants convert Bitcoin or Ethereum payments into currency. Local, which will make virtual currencies even more popular thanks to the real markets.

The digital currency, Bitcoin, has risen in value thanks to increased investor demand (Reuters)

Who buys Bitcoin?

The use of Bitcoin has spread relatively with the emergence of dedicated platforms such as Paymium or Coinhouse in France, and individual investors have also embraced it, just like what actually happened in 2018 before the price crash, and they mostly buy quantities. Small sections of Bitcoin called Satoshi, and it takes 100 million Satoshi to get Bitcoin.

Bitcoin set records at the end of 2020, and it appears that the cryptocurrency has partially shed the definition that it has always seen as a way to redeem illegal products on the dark web.

But the activity in large quantities is mainly supported by institutions such as American or British funds, and Yves Laurent Kean said that these entities "are buying heavily at the present time, because they fear being left behind."

Will the bubble burst?

The writer quotes Catherine Casamata that there is volatility - as is the case with any other currency - because its value is only monetary, and there is no use value, as Bitcoin cannot be consumed, and the price of this currency depends on its future value, and the possibility of being banned by states and by merchants They will accept it as a means of payment, and it is difficult to predict its future. "

"We must now deal with Bitcoin like any investment, that is, sell it when it is too expensive and buy it back when prices drop," said Nigel Green, president of Devere Financial Advisors, at the end of December.

Instead of a sharp drop in prices as happened in 2018, analysts expect a correction. Fuad Razzaq Zadeh, an analyst at ThinkMarkets, said, “With similar performance to what has emerged recently, many investors and speculators will want to reap their profits at the first sign of weakness. ".

The author describes this behavior as natural, as it reinforces the idea of ​​a currency that is increasingly institutionalized and partly involved in the economy, while retaining its originality and decentralized character.