Among the cryptocurrencies, Bitcoin is one of the best-performing digital currencies. On Wednesday, Bitcoin surged 4.8%, reaching a record high value at $18,480.
With the pandemic and growing volatility in the forex markets, investors are now interested in cryptocurrencies. More volatility can be expected from the cryptocurrencies on both sides, though bulls are in charge on the daily chart.
Investors Attracted to Bitcoin
Bitcoin is attracting new customers by moving higher, hitting three-year highs. On Wednesday, Bitcoin moved above its 2017 high, touching $18,480. Increasing volatility in the stock markets and forex markets is driving investors towards cryptocurrencies.
The chief attraction towards Bitcoin is its limited 21 million supply. Its scarcity is attracting individuals towards investing in the cryptocurrency. With central bank policies shifting in countries, cryptocurrencies are seen as a mode to curb inflation. Cryptocurrencies are gaining recognition among new investors who find the high volatility very appealing.
Bitcoin as a Safe Haven
Experts, however, caution investors against considering Bitcoin as a safe-haven asset. Unlike gold and silver, Bitcoin cannot be considered as a safe-haven, say experts. Digital currencies are highly volatile. It is safer to have hard currencies in your wallet or your account rather than investing in digital currencies, say analysts.
Bitcoin at 2017 Highs and Lows
Bitcoin is at the peaks of 2017. In December 2017, Bitcoin moved to almost $20,000 levels. But within a few days, it saw a 30% fall, which resulted in heavy losses for some investors. It cost the cryptocurrency market capitalization a huge loss. By the end of January 2018, it moved closer to $8,500. It was the single largest fall seen in Bitcoin that made investors shy of investing in Bitcoin.
With high volatility in December 2017, Bitcoin crashed from its high peak leaving many investors in the lurch. Investors lost huge amounts by the sudden euphoria, followed immediately by the sudden crash in value. The December 2017 frenzy had many retail investors in the cryptocurrency market.
In March 2020, Bitcoin, which was trading at $5,000, started its upwards move. It has breached the December 2017 highs on Wednesday, November 18. Bitcoin has rallied almost 360% from its March 2020 lows. The rally is seen as a demand by investors for risky assets.
Institutional Buying Supports Bitcoin Upwards move
Institutional buying has brought in high investment into the Bitcoin frenzy. MicroStrategy Inc. has recently invested heavily into Bitcoin. The software firm has invested almost $425 million in the cryptocurrency in August and September.
PayPal has announced plans for users to hold cryptocurrencies in their wallets. As PayPal has many users, the plan has introduced many of its users into Bitcoin and other cryptocurrencies. This move from PayPal may bring in more retail investors into the cryptocurrency market.
Square, a firm led by Jack Dorsey, the CEO of Twitter, says that it has invested 1% of its $50 million assets in cryptocurrency.
Institutional buying is heavy in the US, and companies are investing in cryptocurrencies. The rally is coming from institutional investments rather than retail investors, say analysts.
Apart from institutional investors, Millennials are investing in cryptocurrencies. Millennials are those in the age group of 24 to 39 years, and men are showing more participation. About 66% of users are millennials and Gen X (aged 40-55 years). The young generation is interested in cryptocurrency for their investments.
Other cryptocurrencies like XRP and Ethereum have joined the bullish race. However, Ethereum and Ripple are almost down 90% from their highs. Not much optimism is seen in these cryptocurrencies.
China is launching its own Digital Currency Electronic Payment (DCEP), which is a government-backed digital currency.
The Pandemic and Investment in Cryptocurrency
Experts say that the pandemic has encouraged investors to move towards cryptocurrencies like Bitcoin, to reap immediate profits. They are willing to take risks, though warned about fraudulent trading risks in cryptocurrencies. Investors who hold money on behalf of wealthy people are using cryptocurrencies as a hedge against future inflation.
With the pandemic, the number of users has increased in the cryptocurrency.
During the 2017 peak, Bitcoin was at its peak for just a few weeks at $20,000. But analysts predict that the bull run in 2020 will continue to hold, and $20,000 will be crossed. By 2021, price targets will zoom higher, according to predictions.
However, some analysts are not very optimistic. With a lack of regulations and fraudulent investments increasing, interest in Bitcoin is slowly expected to decline. The volatility may put off investors, feel analysts.
But if the $20,000 is taken off, Bitcoin may move higher with positive sentiment returning into the cryptocurrency market, say, chief strategists. Using cryptocurrencies as a means of payment is gaining momentum.