Introduction

Despite several factors that would ordinarily make investors nervous, such as US-China tensions, Brexit, and, of course, a worldwide epidemic, Bitcoin saw a phenomenal surge in 2020. As pandemic worries spread, bitcoin fell to a year-low of US$4,748 (£3,490) on the daily charts in the middle of March. By the end of the year, it had risen to just around US$30,000.

Since then, it has surged to all-time highs over US$38,000, generating daily headlines and pushing up the value of other cryptocurrencies.

The transition to the mainstream

This time, prominent names like billionaire investor Paul Tudor Jones and insurance behemoth MassMutual have put their money where their mouths are. Even longtime skeptics like JP Morgan are now predicting a bright future for bitcoin. It all adds to the cryptocurrency’s credibility and signals that it is growing more widespread.

Bitcoin has also matured significantly from its early days to purchase narcotics on the dark web’s Silk Road. Digital wallets, keys, and exchanges for Bitcoin are now much simpler to find, and there is a lot more accurate information available than previously.

Inflation protection

Aside from all of this media excitement, COVID-19’s devastation has resulted in massive stimulus packages from governments throughout the world, as well as numerous central banks creating additional money. As a result, reducing people’s buying power. Inflation might rise. Indeed, when the US Federal Reserve reduced its 2 percent inflation goal last year, it signaled that it would be somewhat more tolerant of increasing prices.

Faced with this danger, assets such as bitcoin are being seen as a store of value. The maximum number of bitcoins that will ever exist (until the protocol changes) is set at 21 million, with around 18.5 million now in circulation.

The supply of new coins is also reducing since the incentive that bitcoin miners earn for confirming blockchain transactions halves every four years – it dropped from BTC12.5 to BTC6.25 last May. This shortage is akin to precious metals scarcity.

What’s next?

As a result, it seems that the latest bitcoin price increase has more substance than in 2017. However, not everyone agrees. David Rosenberg, chief economist and analyst of Rosenberg Research and Associates, thinks bitcoin is in a bubble and that investors are confused about how it works.

Rosenberg is qualified to remark on bubbles since he is credited with seeing the US housing market bubble that triggered the global financial crisis of 2008-09. Investors, he argues, don’t understand how bitcoin works, and it’s in a typical herd-following bubble (though he has since conceded he is no expert on the cryptocurrency himself). Meanwhile, price volatility remains a crucial problem, which will continue to concern some institutional investors.

So, how do you know what to believe? There are a lot of optimistic predictions regarding bitcoin’s price in 2021. The creators of significant crypto exchange Gemini, Tyler, and Cameron Winklevoss think bitcoin will ultimately reach US$500,000 per coin, while a Citigroup analyst predicts a price of US$318,000 by December 2021.

These parties have “skin in the game,” and these figures may be too optimistic. The thought of bitcoin reaching US$30,000 in March 2020, on the other hand, appeared improbable. Regardless matter where the price goes from here, the fortunes of the world’s most popular cryptocurrency will undoubtedly be one of the year’s most important financial stories.

The IPO’s Curse

There was one dead giveaway that something like this was on the way. Initial public offerings had always occurred at times when people’s confidence levels were at their highest. When the proprietors of a large private firm believe that market circumstances are as excellent as they can get, they will take their company public. And, because they know what they’re doing, the rest of us should follow suit.

Last month, Coinbase Global, the largest cryptocurrency middleman, was listed at almost the very top of the market for bitcoin. I’m not implying that Coinbase supporters had any inside knowledge; instead, they recognized that the situation was as good as it was going to go.

Elon Musk’s talk was more entertaining, and his arguments against bitcoin on environmental reasons are sound – albeit he should have been well aware of these issues before promoting cryptocurrencies. But we shouldn’t have diverted our attention away from the Coinbase show. The IPO’s Curse will not be ignored.

Getting ready for regulation

If the Coinbase IPO was a solid “signal” that bitcoin was on the verge of one of its periodic severe falls, Wednesday’s flash drop was not. Regulators were the ones to blame. Bitcoin’s popularity stems mainly from the fact that it is a viable alternative to fiat currencies. It could, like gold, be able to retain its value in the face of government measures.

The issue is that state fiat may both create and destroy currencies. Governments have a monopoly on money issuance. Understandably, they’d hate to lose is one of the most severe “bear” arguments against bitcoin Yuan pay group. It gained a lot of additional traction in the hours leading up to the flash collapse. The word came from China that payment and credit institutions will be barred from taking bitcoin. In the United States, the Treasury Department’s new comptroller of the currency launched a review of crypto regulatory policy, succeeding a guy hired by the Trump administration from Coinbase, of all places.

“At the OCC, the emphasis has been on supporting prudent innovation,” said Michael Hsu, acting comptroller. For example, we established an Office of Innovation, modified the chartering framework for national banks and trust organizations, and regarded crypto custody services as part of the banking industry. I’ve asked my team to take a look at these acts.”

It isn’t a declaration of war, and he made it plain that he believes financial technology firms have a bright future. However, any indication that the existing liberal system would be modified was terrible news for bitcoin digital yuan investors.

Conclusion

So, where do we go from here? My best estimate is that another increase in bitcoin Digital yuan assets has crested, and it will be some time before we see the high from last month. Given bitcoin’s capacity to recover and restart, which has been shown multiple times, it is much too early to declare this a busted bubble. How many people use it and how tolerant central bankers care of it will determine if it establishes itself as a component, if not a vital element, of the global financial system. Bitcoin will be worth whatever someone is willing to pay for it as long as it develops. The fortunes of the digital currency are likely to stay related to societal risk appetite; whichever route bitcoinYuanpay Group takes, we can anticipate other risk assets to follow suit.