Welcome 2021, the value of Bitcoin reached almost $24,000 at the end of 2017 and then lost 45% of its value in just six days. What is the reason for the growing demand for this cryptocurrency and its spectacular revaluation, from $10,000 in early December 2020 to more than $40,000 in the first week of 2021? Let’s see.
$40,000 for a Bitcoin
Now, the interest in this cryptocurrency, and its revaluation, comes mainly from institutional investors, mainly investment funds, whose clients are familiar with electronic currencies and find in Bitcoin a way to diversify the risk in their portfolios and protect their assets.
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One of the reasons for this interest is that, with the crisis generated by the pandemic, central banks have intervened in financial markets by implementing zero or negative interest rates, buying sovereign debt and printing currency.
Investors fear that this monetary policy will lead the economies to a scenario of inflation and currency devaluation. That is why investors are investing in Bitcoin as they do in other similar safe havens, such as gold, which, unlike cryptocurrency, has intrinsic value.
This investment behavior has already been observed in countries with hyperinflation or lack of confidence in their government.
Why do people count on Bitcoin?
Bitcoin, the highest value cryptocurrency on the market, was created in 2009 by Satoshi Nakamoto as a payment method. Nakamoto also invented blockchain technology that serves as a support for managing transactions.
Bitcoin was designed to make its operations anonymous and private, leaving it outside the control of governments. As a way to avoid devaluation, Sakamoto limited the possible number of Bitcoins to twenty-one million. And to eliminate the risk of fraud, he created the technology that allows transactions to be validated and recorded on chain through mathematical procedures, without the possibility of being altered.
The still limited but growing ease of buying and selling Bitcoins and its acceptance as a payment method is normalizing the use of this asset by the general population.
In the United States, users of platforms such as Square and PayPal can buy, sell and store, other cryptocurrencies such as Etherum, and Litecoin.
On the other hand, throughout 2021 PayPal will allow the use of cryptocurrencies as a payment method in the more than 26 million businesses that work with this platform.
In Europe, BBVA recently announced that starting next year, its clients in Switzerland will be able to buy, sell, and hold Bitcoin deposits.
Governments and regulators are concerned about the increase in transactions in cryptocurrencies to the detriment of traditional currencies. For this reason, central banks are considering issuing their own cryptocurrencies. With this decision, central banks seek to facilitate international payments and the elimination of cash. China has been the first country to issue a crypto version of its sovereign currency, the yuan.
Regulators are especially concerned about the privacy that cryptocurrency transactions provide because this makes them especially attractive to criminal networks.
One of the options that have been proposed to regulate this market is to force companies that facilitate cryptocurrency transactions to register and verify their users, in a similar way to what banks do with their clients to open accounts.
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What is the future of Bitcoin?
As it becomes easier to carry out commercial transactions in Bitcoin, its use as a payment method will tend to spread among the population, especially in international payments, in which cryptocurrencies provide clear advantages: they eliminate the costs and risks related to transactions in currencies and provide speed in making and receiving payments.
However, it must also be taken into account that fluctuations in the price of Bitcoin, sometimes dramatic, make it difficult to use it as a payment method. Perhaps the key to this is the stabilization of its price.
On the other hand, investors have found Bitcoin as an attractive source of profit. The fact that its creation has a limit of twenty-one million (one of which is in Nakamoto’s hands and out of circulation), makes it a rare asset with great potential for appreciation.
Ultimately, Bitcoin, or any other cryptocurrency, lacking intrinsic value like gold and not backed by a state, like sovereign currencies, causes its price to be determined exclusively by supply and demand.