- Bitcoin has more than doubled in less than a month, leaving analysts and investors stunned and concerned about a possible market bubble.
- In many ways the token’s rally in recent months is crucially different than the surge seen three years ago, as buyers now range from casual day traders to fund managers handling billions of dollars in assets.
- Easy monetary conditions and trillions of dollars in fiscal stimulus have led some investors to view the token as a new inflation hedge.
- Detailed below are the factors driving bitcoin higher, and why experts don’t think the cryptocurrency will crash as it did in 2017.
- Visit the Business Insider homepage for more stories.
It took nearly 11 years for bitcoin to reach $20,000 per coin for the first time in 2017. Just 22 days later, the world’s most popular cryptocurrency has surged another $20,000, and its momentum is so far holding strong.
Bitcoin’s rapid climb back in 2017 was swiftly followed by sell-offs that erased the bulk of its quickly earned gains. But no such trend has emerged this time around, and experts say a combination of factors fueled the token’s surge through 2020 and will continue to boost bitcoin in the new year.
Detailed below are three reasons behind bitcoin’s price spike, and a discussion of why it’s unlikely to suffer a crash similar to that seen two years ago.
(1) Fear of missing out
While passionate retail investors powered bitcoin’s 2017 rally, public companies sparked the token’s latest climb. MicroStrategy started a chain reaction when it bought $425 million worth of bitcoin in August and September, Jimmy Nguyen, president of the Bitcoin Association, told Insider. The move opened the door for other public companies to view bitcoin as a viable reserve asset.
Square followed in October with its own $50 million purchase. Still, it wasn’t until PayPal adopted bitcoin that prices began to rocket higher. The company announced on October 21 that it would allow its hundreds of millions of users to buy, sell, and hold bitcoin. The token leaped to its highest level since July 2019 as investors saw the adoption as a key step forward for bitcoin’s widespread use.
Read more: The CIO of a $500 million crypto asset manager breaks down 5 ways of valuing bitcoin and deciding whether to own it after the digital asset breached $40,000 for the first time
“People are seeing a move to it as a reserve asset, knowing there’s a limited supply of Bitcoin, and saying, ‘okay, I want my piece of it before it goes too high in price,” Nguyen said.
The subsequent rise in bitcoin prices then pulled institutional investors into the fray. Fund managers who previously balked at the token and its violent price swings feared they were missing out on strong returns and began shifting some cash into the cryptocurrency.
Institutional investors have since pushed billions of dollars into the cryptocurrency market. Their involvement has played the biggest part in the token’s meteoric rise…