Five key factors driving Bitcoin's price

Original title: "Why Is Bitcoin Price Rising? Here Are 5 Key Reasons"

Original article by Scott Chipolina

Original translation: 0x13, BlockBeats

summary

-The price of Bitcoin has continued to rise in recent months, and there are several reasons behind the surge.

-High-profile figures and companies have expressed support for Bitcoin.

-Other reasons include the Bitcoin halving, which also directly affects the price of Bitcoin.

The price of Bitcoin has surpassed $16,000 for the first time in three years and is currently trading at $16,081 at press time, a 28% increase in value over the past three months.

In March, the price of Bitcoin fell sharply to its lowest point this year, hitting $4,000. Since then, the price of Bitcoin has been rising rapidly, rebounding continuously, and has remained above the price of $10,000, and recently hit a new high since Bitcoin's epic bull run in 2017. However, this time, the reasons driving the soaring price of Bitcoin are very different from before.

Why is the price of Bitcoin rising?

There are many reasons for the rise in Bitcoin prices. Investments from large institutions such as MicroStrategy have led the way, and large companies like Grayscale are managing Bitcoin for their clients. More importantly, it has become easier to buy Bitcoin since Paypal began allowing people to buy and sell Bitcoin.

The total supply of Bitcoin has also been cut in half, which is one of the reasons why the price of Bitcoin has risen. These individual factors have combined to form an impressive Bitcoin bull run in the second half of 2020. It all started with MicroStrategy.

The MicroStrategy Effect

From August to September this year, the business intelligence company and international giant MicroStrategy invested $425 million in Bitcoin.

Following MicroStrategy’s investment, Square also invested $50 million in Bitcoin on October 8, 2020 – 1% of the company’s total assets.

After investing in Bitcoin, MicroStrategy and Square have made handsome profits of 46% and 53%, and the Bitcoins of these two companies are now worth $620 million and $76 million, respectively.

In recent months, these big names have also become Bitcoin's most staunch supporters and have publicly expressed their praise for Bitcoin on many occasions.

MicroStrategy CEO Michael Saylor has been vocal in his praise of Bitcoin. When his company first announced its investment intentions, Saylor described Bitcoin as "digital gold," a cryptocurrency he said is "harder, stronger, faster, and smarter than anything that came before it."

Similarly, Square’s CFO Amrita Ahuja said, “We believe Bitcoin has the potential to become a more ubiquitous currency in the future.” He added, “This investment is a solid step in that journey for a company that is building products based on a more inclusive future.”

These investments and their public praise for Bitcoin appear to have started after MicroStrategy’s first investment, leading to what Jason Deane, a Bitcoin analyst at Quantum Economics, called the “MicroStrategy effect.” Deane added that these moves “set off a rush for institutions to buy more Bitcoin.”

Top public companies and their Bitcoin holdings

The comments also come amid public support for Bitcoin from others in the investment community.

Public support for investing in Bitcoin

Bitcoin's good performance in the second half of 2020 has led some mainstream companies to begin accepting this cryptocurrency.

JPMorgan Chase is the best example. In 2017, JPMorgan Chase CEO Jamie Dimon labeled Bitcoin a "fraud." In October this year, the investment bank said that Bitcoin is firmly competing with gold and that "Bitcoin's potential long-term upside is considerable."

Paul Tudor Jones, a giant in the hedge fund industry, likened buying Bitcoin to investing in early-stage tech companies. "Bitcoin has a lot of characteristics similar to early-stage tech companies, which unfortunately I didn't realize until I saw your show and saw how many people were paying attention to Bitcoin," Jones said on CNBC's Squawk Box (the co-program CNBC Fast Money is also particularly bullish on Bitcoin).

What’s more, billionaire investor Stanley Druckenmiller, who previously dismissed Bitcoin, said the famous cryptocurrency could be a better bet than gold. “I own many, many times more gold than I own Bitcoin, but frankly, if gold is going to generate returns, Bitcoin is going to generate more returns than gold,” Druckenmiller said this month.

However, while these investors are praising Bitcoin, many investment institutions are also following their lead in investing in Bitcoin.

Grayscale Investments and Bitcoin Custody

Grayscale Investments is an asset management firm that has taken a lead in providing custody services to wealthy Bitcoin holders.

Last week, Decrypt reported how Grayscale Investments had acquired more than 40,000 Bitcoins for its clients. At the time of writing, these Bitcoins were worth more than $600 million. Grayscale isn’t the only player, though.

Grayscale and mobile payment service company CashApp purchased a total of 85,000 bitcoins, worth about $695 million. During the same period, in Q1 2020, a total of 163,800 bitcoins were mined, which means that the two companies bought a total of about half of the total amount of bitcoin mined in that quarter.

The figures have raised concerns that Bitcoin will soon be in short supply, as such large amounts of the cryptocurrency are being snapped up by wealthy investors and giant corporations rather than ordinary people.

Bitcoin supply halving

The Bitcoin halving is likely to have an impact on the price of Bitcoin. The Bitcoin halving occurs every four years and cuts in half the number of coins miners receive for adding new blocks to the Bitcoin blockchain. So starting in May, only half as many Bitcoins will be mined as in previous months.

“With the Bitcoin halving in May, this supply stream is cut in half, which means miners get less Bitcoin. This could lead to a supply shortage and thus a higher Bitcoin price,” said Elias Strehle, a researcher at Blockchain Research Lab.

This is basic economics, and it’s not limited to Bitcoin mining alone, or the wider cryptocurrency industry as a whole. If demand remains the same, but supply decreases, it puts upward pressure on prices.

“Think about fruit. If the harvest is exceptionally good this year, then the price of fruit will go down. However, if the fruit is scarce due to a bad harvest, then the price of fruit will go up,” said Ingo Fiedler, co-founder of Blockchain Research Lab.

All of these reasons have had a positive impact on the price of Bitcoin over the past few months, but there remains one key factor that has also driven the mass adoption of Bitcoin.

PayPal and Cryptocurrency

International payment giant PayPal announced in October that it would launch a cryptocurrency buying and selling feature on its platform. Then, on November 13, it confirmed that all its customers can now use Bitcoin - and plans to bring this feature to Venmo.

The launch includes the ability to buy and sell four cryptocurrencies: BTC, BCH, ETH, and LTC.

PayPal’s arrival brings greater hope for Bitcoin to hit the mainstream, as giants in the financial industry such as MicroStrategy, Square, and Grayscale Investments have contributed to the perception of Bitcoin as a legitimate asset.

"Just bought bitcoin on Paypal, it was super easy. This is how bitcoin will go mainstream," said a Twitter user using the pseudonym BitcoinBF.

PayPal, which once questioned whether Bitcoin was suitable as a currency, is now one of many giants investing in the digital currency, and as they do so, the price of the digital currency is rising rapidly.