Explained: Reason behind Bitcoin’s meteoric rise in 2020

In a year when currency valuations across the world have suffered due to the coronavirus crisis, one digital currency has managed to register a meteoric rise and a surprising comeback. The value of the world’s most popular cryptocurrency, Bitcoin, has surged over 200 per cent in 2020.

The digital currency that was more or less written off by analysts after the dreaded crash of 2018 has seen a sharp rise in its valuation this year. At present, one Bitcoin is valued at roughly Rs 20 lakh or $27,075. On Sunday, the digital currency almost touched $28,000 after it had crossed $20,000 for the first time just a few days ago.

The current market value of Bitcoin has reached a staggering $500 billion, according to cryptocurrency platform Coindesk. It is more than the valuation of Visa, Mastercard and Walmart.

Bitcoin’s meteoric rise in Covid-hit 2020

Most analysts believe that the Covid-hit year is responsible for the revival and meteoric rise of the digital currency. Many Bitcoin investors have said that the pandemic-hit year offered a perfect environment for the cryptocurrency.

Analysts believe there has been a growing acceptance for the digital currency in the current year as traditional currencies and assets took a pounding due to the global economic crisis. Bitcoin’s valuation has also soared as many big brand investors and companies have also stockpiled the digital currency.

The fact that interest rates on traditional investments hit rock bottom during the year also helped in the rise of Bitcoin as more investors poured their money into the cryptocurrency. As the digital currency saw more investors, its value soared from just $7,200 dollar at the start of the year to almost $28,000 now.

Matt Hougan, chief investment officer of Bitwise Asset Management, was quoted in a Bloomberg report saying that “Bitcoin is moving from a fringe esoteric asset to the mainstream”.

“If it’s going mainstream, there is just so much money on the sidelines that is going to have to come in and establish a position that it leaves me very bullish for 2021,” Hougan added.

While predicting the cryptocurrency’s future course is difficult, experts believe that the digital currency will continue to gain in 2021 and added that it could become a nice alternative for retail investors to park their money if traditional interest rates remain low.

Challenges remain

While Bitcoin has managed to shine in Covid-hit 2020, there are several concerns regarding the cryptocurrency’s future.

First, the coin launched in 2009 is known for its wind swings and extreme volatility also faces regulatory hurdles. While the returns on offer are far better than traditional investments, the risk involved is much higher due to the volatility observed in the larger cryptocurrency market.

In 2017, the coin saw a similar rally when its value surged sharply, only to crash the following year. So, the cryptocurrency has a reputation of unpredictability, making it impossible for analysts to give a concrete prediction of its future. However, analysts seem more optimistic about the acceptance of Bitcoin this time.

Secondly, the digital coil could face further scrutiny for regulators if it continues its meteoric rally. Several strategists and investors have said Bitcoin trade or the broader cryptocurrency industry could see tighter regulations in future, especially in the United States under Joe Biden’s administration.

Most cryptocurrency experts feel that a lot will depend on how countries around the regulate crypto trade, signalling that the air of uncertainty surrounding such trade remains at large.

While most experts believe that the digital currency will improve on its position in 2021, they have warned interested investors to be prepared for sharp corrections and wild volatility.

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