Why is the price of Bitcoin rising? Here are 5 key reasons

Bitcoin’s price is over $ 16,000, having broken through for the first time in three years. Its current price of $ 16,081 represents a 28% increase in value over the past three months.

It’s been a rapid rise since March, when Bitcoin dropped sharply to its lowest point of the year, hitting $ 4,000. The coin continued to recover and made its way above the $ 10,000 price, hitting new highs recently and reaching values ​​not seen since the epic Bitcoin bull run of 2017. Yet this time around, a completely different set of circumstances are accelerating the price of Bitcoin to new highs.

Why is Bitcoin increasing?

There are a multitude of reasons for Bitcoin’s price increase. Investments from large institutions like MicroStrategy led the way, as did large companies like Grayscale that manage Bitcoin for their clients. Plus, it’s now easier to buy Bitcoin since PayPal started letting people buy and sell Bitcoins.

The total supply of Bitcoin has also halved and this also played a role in the rise in Bitcoin prices. Each of these individual factors combined to generate an impressive bull run for Bitcoin during the second half of 2020. But it all started with MicroStrategy.

The MicroStrategy effect

From August to September This year, a business intelligence firm and international giant, MicroStrategy, invested $ 425 million in Bitcoin.

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

Since these investments, MicroStrategy and Square have made significant profits of 46% and 53%, with each company’s Bitcoin now worth $ 620 million and $ 76 million respectively.

These big names have also become some of Bitcoin’s most outspoken advocates in recent months.

MicroStrategy CEO Michael Saylor publicly praised Bitcoin. When his company first announced its investment intentions, Saylor described Bitcoin as “digital gold”. said that cryptocurrency is “tougher, stronger, faster and smarter than any money that preceded it.”

Likewise, Amrita Ahuja, who was Square’s chief financial officer when the company made its investment in Bitcoin,She said, “We believe that Bitcoin has the potential to be a more ubiquitous currency in the future,” adding that, “For a company that is building products based on a more inclusive future, this investment is a step on that journey.”

These investments and moments of great public praise for Bitcoin seemed to start with MicroStrategy’s first investment, and was therefore dubbed the “MicroStrategy Effect” by Jason Deane, a Bitcoin analyst at Quantum Economics. Deane added that these moves have “kicked off an institutional race to secure as much Bitcoin as possible.”

These statements were also accompanied by very public support for Bitcoin from other parts of the investment world.

Public support for Bitcoin investments

Bitcoin’s positive run in the second half of 2020 has seen some big names embrace the cryptocurrency.

JPMorgan is one of the greatest examples of this. In 2017, JPMorgan CEO Jamie Dimon called Bitcoin a “fraud. “This October, the investment bank said Bitcoin is solidly competing with gold, and that “the long-term upside potential for Bitcoin is considerable”.

Paul Tudor Jones, a giant in the hedge fund industry, likened buying Bitcoin to early investing in technology. “Bitcoin has many of the characteristics of being an early investor in a tech company, and I didn’t realize it until, unfortunately, I came from your program and was besieged by God knows how many different people on Bitcoin,” Jones She said on CNBC’s Squawk Box (which was also the CNBC Fast Money partner program particularly bullish).

Additionally, Stanley Druckenmiller, a billionaire investor who was previously dismissive of Bitcoin, said the popular cryptocurrency could be better than gold. “I own many times more gold than I own Bitcoin, but frankly if the gold bet works, the Bitcoin bet will probably work better,” Druckenmiller She said this month.

However, as these investors proclaim the virtues of Bitcoin, many institutional investors are following suit.

Grayscale Investments and Bitcoin Custody

Grayscale Investments, an asset management firm, is at the forefront of providing custody services for wealthy Bitcoiners.

Last week, Decrypt reported on how Grayscale Investments had raised over 40,000 Bitcoins, worth over $ 600 million at the time of writing, for its clients. However, Grayscale isn’t the only player in town.

It was a total of 85,000 Bitcoins, worth around $ 695 million bought from both Grayscale and CashApp, a mobile payment service owned by Square. During the same period, the first quarter of 2020, a total of 163,800 Bitcoins were mined, which means that both companies purchased collectively the equivalent of about half of the total amount of Bitcoin mined that quarter.

These figures are raising concern that Bitcoin will soon be in short supply, as such huge amounts of cryptocurrency are being raised by wealthy investors and giant companies, rather than your average Joe.

Bitcoin halving: squeezing supply

Bitcoin’s halving likely impacted Bitcoin’s price. Bitcoin halving occurs every four years and halves the number of coins miners receive for adding new blocks to the Bitcoin blockchain. So, from May onwards, only half of Bitcoin was created compared to previous months.

“With Bitcoin’s halving in May, this supply flow has halved, which means fewer Bitcoins are being offered for sale by miners. This can contribute to a shortage of supply and therefore to an increase in the price of Bitcoin, “said Elias Strehle, researcher with the Blockchain Research Lab Decrypt.

This is the basic economy and is not limited to simply mining Bitcoin or the broader cryptocurrency industry as a whole. If demand remains the same but supply falls, this puts upward pressure on the price.

“Think of apples: if this year’s harvest is extraordinarily good, apple prices will drop. If, however, apples are in short supply due to a bad harvest, apple prices will rise, “said Ingo Fiedler, co-founder of the Blockchain Research Lab. Decrypt.

All of these reasons have had a positive impact on Bitcoin’s price in recent months, but one factor, which is also the most suitable for generating Bitcoin’s mass adoption, still remains.

PayPal and cryptocurrency

PayPal, the international payments giant, announced this October it will launch cryptocurrency buying and selling functionality on its platform. Then confirmed yesterday that all of its customers can now access Bitcoin and plans to bring this functionality to Venmo.

This launch included the ability to buy and sell four cryptocurrencies, namely: Bitcoin; Bitcoin Cash; Ethereum; and Litecoin.

As financial industry giants like MicroStrategy, Square, and Grayscale Investments have contributed to the perception of Bitcoin as a legitimate asset, PayPal’s arrival on the scene is the most promising for Bitcoin’s hopes of reaching the mainstream.

“I just bought Bitcoin on Paypal, they made it super easy. This is how Bitcoin becomes mainstream” She said a Twitter user under the pseudonym of BitcoinBF.

PayPal used to question Bitcoins adequacy as a currency, but now it’s just one of the many big names jumping on the Bitcoin bandwagon. And while it stands alongside everyone else, it’s no wonder that Bitcoin’s price has gone on fire.