A few months ago, I had written about the magical cryptocurrency that had skyrocketed from a small initial value of a few dollars to thousands of dollars today. BitCoin recently reached a new all time high in the year of 2020 as buyers have become more eager to hold the coin that has a tremendous growth rate. But why this large jump from 4,106 dollars to 31,244 dollars all within 1 year. This large jump was fueled by several factors that encouraged people internationally to purchase the digital coin.
Media and Mainstream trends - Recently we have seen a colossal increase in the number of people searching for bitcoin;from finding how to purchase it to looking for the various items that are only buyable using the cyrptocurrency, people all over the world are finding ways to add the cryptocurrency to their portfolio of assets to become part of the bubble that is once again rising. These trends are further supported by the various availabilities of digital wallets and applications that permit the user to buy this cryptocurrency as an asset for their portfolio. People are further being influenced by celebrities such as Akon who aims to power the city he is building in Africa using crypotcurrencies.
The rise of other cryptocurrencies - What may sound absurd at first is actually the reason why the bitcoin has risen by over 661%. In the normal markets, when the demand of substitute goods(Aka other cryptocurrencies) increases, the demand of the primary good(Aka bitcoin) usually decreases as the consumers prefer the other goods. However, the ability of people to purchase stable cryptocurrencies have given them the confidence in cryptocurrencies becoming the future of payments. This pushes them to purchase the rising coin and hence boosts the demand for bitcoin, which is now seen as the asset replacing gold.
Digital Gold Standard - For centuries, people have usually considered gold to be one of the most precious metals on this planet and hence have used it as a standard for financial stability. However, during the times of this pandemic, people have become more confident in the value of bitcoin to serve as an asset that could potentially be the replacement for gold as the new signal for financial stability.
Scarcity - The most basic economic problem stand to be one of the root causes of the rise of the cryptocurrency. As the number of bitcoin available on the market slowly approaches its maximum value, we can see that the people are sticking to their loss aversion bias and hence have begun purchasing the currency. This price cap of the bitcoin forces people to buy the coin so that they don’t essentially ’miss out’ on the opportunity to buy an asset that could eventually be worth millions of dollars just for a single coin.
We can see that there are a multitude of reasons as to why the cryptocurrency has seen a rise during a worldwide economic downfall due to the coronavirus, which could potentially be one of the reasons why people have come to believe that gold can be substituted by a digital counterpart - bitcoin. We may see that this cryptocurrency is no longer assumed to be a currency but more of an asset that can be added to your portfolio using the e-wallets available online. We start this new year with uncertainties in the world of FinTech and every other industry, truly a scary time to be alive.
I wish you all a happy new year and I hope you all have an amazing 2021!
