Bitcoin Gains Currency As Investment Option In Weakened Economy

The pandemic shutdown has thawed the winter of Bitcoin’s price.

The cryptocurrency’s price, which has been lost in a moribund meander since last year, has decisively moved upwards since the pandemic began. It has skyrocketed by more than 140 percent, from $4,944 in mid-March, when the global economy began shutting down, to $12,350, as of this writing.

As has often happened in the past, the reasons for a multiplication in Bitcoin’s value remain mysterious. At least two big events, which could have catalyzed a surge in its price, have occurred since March. Halving of rewards for miners has made the cryptocurrency scarce and was expected to signal the beginning of a resurgence in Bitcoin price. Save a feeble increase, Bitcoin price mostly trended sideways as the event went by without a blip on investor radars.

Investment by Paul Tudor Jones, a billionaire hedge fund investor, was also supposed to herald the entry of big-ticket investment into the cryptocurrency. Again, the news turned out to be a non-starter for price action.

The fundamentals of Bitcoin’s blockchain, another indicator for prices, are aligned with its current upward move. For example, the number of transactions on Bitcoin’s blockchain has multiplied.

But they still do not provide conclusive proof for Bitcoin’s future trajectory. This is because the rise in transaction numbers could be an indicator of trading activity (real or fake) rather than the influx of new investors.

A Volatile Asset and a Low Interest Rate Environment

Bitcoin’s volatility, however, has come to its rescue. Even as it has stumbled its way through wild price swings, the cryptocurrency’s prices have offered traders and investors a venue for high returns in an anemic economic environment. Interest rates on most instruments, such as 10-year Treasury Notes, continue to be low. While the Federal Reserve’s money printing machine is propping up the American (and global) economy, the same strategy may end up undermining the U.S. dollar’s role as a reserve currency and contributing to future inflation.

Of course, this is not to suggest that investors are making a beeline for Bitcoin. Gold seems to be their favored destination for now. The precious metal has moved from strength to strength and is up by 28% since the beginning of this year. According to some estimates, it could hit a record $3,000 per ounce by the end of next year.

Bitcoin, which aspires to become the digital equivalent of gold, is riding on the coattails of that boom in appetite for alternative investments. And firms like Grayscale Investments are profiting from the increase. The firm witnessed an increase of 90 percent in its fund holdings and raised a record $906 million, its highest amount yet, during the second quarter.

Whether the company is able to sustain that increase in the future is still an open question. Bitcoin price’s fickle volatility and thin liquidity make past history an unreliable indicator of future performance. But the cryptocurrency still remains an attractive proposition for momentum traders, who continue to flock to it in hopes of a 2017 redux.