At the beginning of 2021, Bitcoin updated the historical maximum value several times, testing the level of $40,000. What caused such a rapid growth of the first cryptocurrency? What trends and events have we seen in 2020? What is the future of Cryptocurrencies in general?
Successful halving
In January 2020, Bitcoin also rose by 20% – the last time such an increase was recorded in 2012. This was followed by a deep correction and many predicted an unfavorable future for Bitcoin.
Experts were inclined to believe that in 2020 Bitcoin could reach the bottom when it becomes unprofitable to mine – especially considering the halving, which was to take place in May.
Halving – is a halving of the amount of remuneration paid to miners for adding a new block to the Blockchain . Satoshi Nakamoto programmatically laid halvings in the bitcoin network every 210 thousand blocks, or every 4 years – until the moment when the issue of cryptocurrency will be finished with the extraction of 21 million coins (presumably in 2140).
Bitcoin steadfastly endured halving and did not fall to the unprofitability of mining, but, on the contrary, began to restore the exchange rate and since then has only become more expensive. What allowed it to strengthen?
New users and venture funds
The coronavirus pandemic first negatively abandoned the cryptocurrency market, but then, on the contrary, caused an influx of new users.
Newcomers poured in from among those people who at the time of the pandemic were laid off, fired or sent to rest at their own expense. The number of active users has skyrocketed.
The pandemic returned the attention of institutional investors to cryptocurrencies, which faded somewhat in 2019.
Three giants of the VC market immediately invested in Bitcoin, and each of them accompanied their actions with comments that Bitcoin today is a more promising and reliable asset than the dollar.
Throughout 2020, wealth management company Grayscale has invested in BTC as much as 80%, more than in the entire previous time. In September, cryptocurrency trust Grayscale reported that it has a total of 450,000 BTC in its accounts.
This is almost 2.5% of all currently issued coins of the network.
MicroStrategy acquired BTC for about $250 million. The new capital allocation strategy involves transferring assets to Bitcoin in order to maximize the value of investors’ investments in the long term.
The venture capital firm Square also transferred 1% of its total capital to Bitcoin, which is approximately $50 million. The company also made an official statement that the cryptocurrency is evolving amid macroeconomic problems and depreciation of the largest government currencies.
Risk hedging and inverse correlation with the US dollar
As a result, amid the uncertainty that was demonstrated at that time by global markets, Bitcoin was assessed as a hedging tool: the cryptocurrency was bought to diversify the portfolio, since such a seemingly unshakable asset like the dollar began to lose value after the distribution of billions of helicopter money.
Since June 2020, a number of leading analysts have begun to point to a direct correlation between Bitcoin and gold and an inverse correlation with the US dollar.
In practice, many traders noticed how the news of monetary easing by the Fed and new stimulus measures caused the BTC/USD pair to rise and vice versa. This has made cryptocurrency easier to understand and trade. In addition, the influx of new users made the trading instrument more stable.
Fears and hopes
At the same time, the world's leading regulators are still not ready to openly support cryptocurrencies. Thus, the UK Financial Conduct Authority (FCA) warns that cryptocurrency investments and loans are associated with a high level of risk, and states that investors should be prepared to lose all their money if they invest in cryptocurrencies.
Pavel Durov's TON project could not get approval from the US Securities Commission. The SEC recognized GRAM tokens as securities and demanded the closure of the project. Durov refused to work on them and promised to return part of the funds to investors.
Another major stablecoin project, Facebook's Libra, also received no support from the US financial regulator.
However, there were also bright sides in the interaction between the crypto market and the state in 2020. PayPal payment service has launched a new service that allows users to buy, hold and sell cryptocurrency.
As a result, over 26 million people have gained access to cryptocurrency from their e-wallets. Most importantly, PayPal has received conditional licensing from the New York State Department of Financial Services.
In January 2021, the volume of bitcoin trading on the PayPal platform amounted to $242 million. So far, this service is available only to US citizens, but the company's management plans to soon expand it to the whole world.
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