Whether you like how the financial world is shaping up, one thing you can’t deny is the rise of bitcoin and cryptocurrencies. This Christmas the three wise men have journeyed to visit baby bitcoin. All year round all kinds of wise men have been paying their respects to bitcoin. This year, anyone already HODLing bitcoin will be having a Very Merry Christmas. The price of bitcoin this week hit a new all-time high, shooting past $24k and reaching $24,209.66 on Dec 20, 2020, The record price came two days after bitcoin first sliced through the $23,000 price point. Cryptocurrency giant Coinbase announced on Thursday that it has confidentially filed for a public offering. MicroStrategy raised $650 million to buy more bitcoin, expected to take its holdings to over $1 billion, triggering a fresh wave of bullishness among crypto investors. The number of tweets about bitcoin reached its highest level since mid-January 2018 on Wednesday, according to The TIE, with over 92,000 tweets posted. Bitcoin mentions in mainstream media and finance publications are on track to overtake gold. The key question remains. What is driving the eye-popping ascent of the digital currency and why does something without any fundamental value, as NYU Stern School of Business Professor Nouriel Roubini claims, keeps going up? Will it continue? I think it will.
Ilias Louis Hatzis is the founder and CEO at Kryptonio, a “keyless” non-custodial bitcoin and cryptocurrency wallet, that lets users manage bitcoin and crypto, without private keys or passwords.
There are a multitude of reasons for bitcoin’s price rise and depending to whom you speak with, you’ll hear different reasons. But regardless of the reasons, bitcoin has grown and matured into a viable asset, becoming a part of the portfolios of famous billionaire investors, large institutions, and retail investors.
This year we’ve had two major shifts, one in demand, the other in supply.
On the demand side, we’ve had public companies like PayPal enter the market. PayPal is already buying 100% of the new supply of bitcoins. Bitcoin also went institutional this year, with big players becoming mega bitcoin HODLers. From MicroStrategy and Grayscale to JPMorgan and Goldman Sachs, bitcoin has secured its place in investment portfolios, as a hedge against inflation and currency devaluation.
On the supply side, especially since its “halving” in May, demand has outpaced the supply. Halving occurs roughly every four years, when the number of bitcoins awarded to miners is cut in half. It serves to limit the supply of bitcoin coming into the market. After the last halving in May, every 10 minutes when a block is verified, 6.25 new bitcoins are minted, instead of 12.5 bitcoins that were created until May.
Now if add the macroeconomic environment due to covid19 to the puzzle, you have the makings of the perfect storm. Low interest rates, money printing, and the FED’s average inflation target of 2%, drove retail and institutional investors to bitcoin, making the demand for bitcoin is 3x the available supply.
Here some of the things that happened this year, that helped us reach this point:
More and easier on-ramps
The only thing you need to use bitcoin is a smartphone. It has become a lot easier and a friendlier experience in leading mobile apps to buy and sell bitcoin. Now it’s also possible to buy bitcoin using a credit card and pay with dollars, euros and pounds in apps like Square’s Cash App, Coinbase and others.
Coinbase’s announcement comes at a time when both the IPO market and cryptocurrency prices are on fire. The Coinbase IPO represents an important milestone for the crypto industry and its quest for legitimacy.
Paypal enters the market
PayPal, announced this October that it would launch cryptocurrency buying and selling features on its platform, allow its user to pay merchants with bitcoin and buy and sell through Venmo in 2021.
PayPal and Square’s Cash App buy 100% of the new supply of bitcoins
PayPal and Jack Dorsey’s Cash App have bought 100% of newly mined bitcoins as the digital token is seeing a record rally this year, according to Pantera Capital.
MassMutual buys bitcoin
MassMutual’s bitcoin purchase represents a significant milestone in the Bitcoin adoption by institutional investors. The entry of a prudent investor into bitcoin, could signal the coming of other insurance companies and pension funds that follow MassMutual’s example.
MicroStrategy bets a billion on bitcoin
MicroStrategy completed the sale of its $650 million convertible note and is planning to use the proceeds to buy Bitcoin. This latest round, would take MicroStrategy bet on bitcoin to over $1.1 billion. The company could have gotten rid of its excess cash by paying a big dividend or buying back a ton of stock. Instead, it made a big bet on digital currency.
Grayscale Bitcoin Trust
Grayscale has been the only way for investors to gain exposure to bitcoin in their stock market accounts and IRAs over the last few years. It’s a publicly traded trust that buys bitcoin, without having to worry about cold storage or encryption codes.
Public support for bitcoin
In 2017, JPMorgan’s CEO, Jamie Dimon, labelled bitcoin a fraud. This October, the bank said bitcoin is solidly competing with gold, and that the potential long-term upside for bitcoin is considerable. Add to this last support from Paul Tudor Jones, Stanley Druckenmiller, Scott Minerd.
Central Banks adopting crypto
Central banks, including the US Federal Reserve, European Central Bank, Bank of Japan, Swiss National Bank and the Bank of England are pushing ahead to develop their own CBDCs. Leading the pack is the People’s Bank of China, which is piloting a digital renminbi.
New layers replacing old intermediaries
Decentralised finance (DeFi) automates financial markets, without traditional intermediaries such as stock markets or banks. This year DeFi services witnessed an impressive growth surpassing $10 billion.
OCC rules that banks can hold bitcoin
Even your local bank may soon be able to help you or your parents and grandparents get into bitcoin. The Office of the Comptroller of the Currency, a federal bank regulator, ruled in July that banks may hold cryptocurrency for clients.
I can see the price continuing on this track.
Bitcoin’s current market cap is about $350 billion, while that of gold’s stands at roughly $10 trillion. This week the cryptocurrency gained 12% over two days alone, and was trading at $22,994 on Saturday. It’s very possible that bitcoin will become a trillion dollar asset next year this time. For bitcoin’s market cap to reach $1 trillion, it would have to hit a price of $54,000 per coin by next year, a 130% rally from where it’s at now.
Blockchain.com reported 32 million users in January 2019 and around 45 million in January 2020. This is a 41% increase last year. Today, there’re around 100 million people that use bitcoin. There are 3.5 billion people in the world that have a smartphone. I don’t think it’s crazy to imagine a world by 2025 where 2.7 billion users, same as the number of people that are using Facebook today, use bitcoin.
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