Over the past month, Bitcoin has doubled its price and caused a kind of stir that the crypto community has never seen before. Of course, such events don’t happen without a reason. Today we will take a look at the background for the rise of the bitcoin and ether prices, as well as the cryptocurrency market in general.
Crisis and inflation due to COVID-19
In many countries around the world, the economy collapsed, and the government did not take reasonable steps. In particular, we witness a high rate of inflation since large amounts of additional fiat money were issued. Those who keep their savings in fiat money are not happy about it, of course. Their capitals are literally depreciating in front of them.
This is how they realized that they need a protective asset. Gold and other precious metals have always been this asset. But now, in the age of digital currencies, there is an alternative, namely bitcoin and other cryptocurrencies. Many investors have found that this is how they can not only keep their assets intact but also multiply them.
Institutional interest
The second reason derives from the first one. The preservation of capital is even more interesting for large institutional investors than for private investors. For instance, MicroStrategy invested several hundreds of millions of dollars in BTC during the last months. Other large investors followed suit, and this resulted in a rapid rise in the rate and capitalization of cryptocurrencies.
Major asset owners such as Tudor Investment and Guggenheim Partners have announced the purchasing of BTC or futures contracts on the CME Chicago Exchange. Even conservative Wall Street companies like Morgan Stanley haven’t been left out. Analysts at JPMorgan Chase, America’s most prominent bank, recently suggested that bitcoin would be worth $146,000 in the long run.
Decentralized Finance
The past year can be called the year of DeFi. Decentralized protocols aimed at managing funds autonomously and anonymously have been emerging and evolving for months. This includes trading, credits, loans, passive income, insurance, etc.
These protocols allow to carry out the same transactions that are now available at traditional banks but in a much more accessible way. There’s no need to provide any papers or proof of income.
Many DeFi-tokens showed incredible price growth immediately after their launch. Most of the decentralized protocols run on the Ethereum blockchain, which also caused ETH to rise.
Halving
Bitcoin halving (a process when the reward for mining new blocks is halved) has always led to a gradual rise in the crypto market. It is no surprise since the supply, i.e. the miners’ reward for adding a new block, is decreasing, while the number of potential buyers is growing. This is why the exchange rate is growing. Halving happens every four years, and every time after that the value increased, as BTC became more valuable and difficult to mine. And the price of altcoins almost always correlates with the price of the main digital coin.
There are many different opinions on what will happen next, but one thing is certain. This rally cannot be compared to the 2017 rally. Now the growth is much more confident, solid, and grounded. At that time it was more like a hype that arose because of many ICO-projects. Even if there will be a price correction later, and it is bound to happen, most experts agree that we will not see bitcoin below $25,000 anymore.
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