In this weeks trading, the Bitcoin price reached a higher level than its all-time high reached in the Bullrun 2017. In the three-year interim phase, investors needed resilience, however, fundamental factors underline the price increase.
At various crypto exchanges the all-time high in the Bitcoin price was cracked. Bitcoin trades momentarily lower again, however the intraday breakaway over the all time high was symbolic for the transformation, which the oldest cryptocurrency was able to accomplish over the last years.
The journey that Bitcoin has already taken in its short lifetime is quite remarkable. The limited offer, the deflationary structure, as well as the value storing characteristics combined with boundless, censorship-resistant transfer possibility, coupled with 24/7 tradability, gives Bitcoin a serious right to exist. In its eleven-year existence not only the price increased steadily, but also a strongly growing infrastructure around the currency could be observed.
Broader institutional perception
In recent years, regulation has made digital currency more widely adopted as a store of value and a means of payment. While in 2017, mainly individual investors were still participating in the price increase, in 2020 in particular, more and more institutional investors have joined in. Bitcoin is slowly but surely fighting its way into the traditional financial world as an accepted asset class. Numerous adoptions of the tradability of traditional financial houses, but also regulatory developments such as in the USA and Germany speak this language.
Few institutional investors have had access to this new asset class only recently. While more and more people appreciate the unique attributes of Bitcoin, an increasing number of services around digital assets are being offered by innovative banks and investment houses. Even on Wall Street, Bitcoin has had a presence for quite some time. Over the last short while, derivatives in the form of futures and options can be traded via major exchange operators such as the CME. But the resourceful structure of the Grayscale Bitcoin Trust also finds its way into specialized depots in the US market, which is in part heavily regulated, and this year it has recorded record inflows.
The crypto currency also appears to be becoming increasingly popular with companies as a liquidity substitute. The U.S. software manufacturer MicroStrategy announced in August that it had acquired 21,454 Bitcoins for USD 250 million as part of its new investment strategy. Bitcoin would thus be their primary value investment to protect themselves against the devaluation of money and other assets. The conduct of Microstrategy was followed by other companies, and they are unlikely to have been the last.
Digital gold and usage via traditional payment providers
Bitcoin was designed as a hard currency and has unique attributes that no asset has ever been able to cover before. The digital currency was created as a new monetary good, inspired by precious metal money forms. What makes it special is that inflation is decreasing over time. If demand remains constant over time, a price increase can be expected in the medium term. Designed in response to the monetary interventions of central banks that flared up during the 2008 financial crisis, the properties of Bitcoin that were taken into account at the time could not be more appropriate in today's world.
Bitcoin is penetrating into traditional financial areas and is increasingly perceived as an investment object. Although the crypto currency can be used as a digital means of payment in isolated cases, there is a lack of applications for the broad masses. Paypal worked against this shortcoming in October. From the beginning of 2021, customers will be able to use their crypto currency stocks to pay at PayPal's 26 million merchants around the world. The acceptance of crypto-currencies by payment giants like PayPal is a great success and will significantly advance a broad adaptation. More payment providers are expected to follow in 2021.
All-time high, price volatility and outlook
The fundamental facts are good for Bitcoin. The current events on the world markets and the corresponding actions of the central banks continue to qualify limited assets as attractive investments. Bitcoin could pass its acid test this year. With the renewed reaching of the all-time high, which was last seen over 1000 days ago, we remember March 2020: In the middle of the corona shock, markets collapsed worldwide. Even the largest crypto currency by market capitalization was caught in the maelstrom of the downward spiral and lost 60% of its value within a very short time.
The Bitcoin price has already experienced an unseen increase in value over its short time. The prospects for a continuation stand well. However, the risk of price setbacks must not be forgotten. Even in past bull phases, investors have had to accept interim corrections of 60% or more. This is often too much for traders and nervous investors. In addition to an appropriate weighting in an overall portfolio context, for individual investors a "dollar cost averaging" strategy is an alternative to a one-off investment. With smaller investments, an average price is achieved over time and one is not at the mercy of a single price constellation. However, the component of the ability to absorb a loss should be in the foreground as with every investment decision.