Cryptocurrency prices have been notoriously volatile; the recent all-time record high of the Bitcoin has generated euphoria amongst investors. The skyrocketing prices are an indication that miners are definitely back in business even after the recent Chinese crackdown on crypto mining. Besides, there is a growing adoption of cryptos by businesses and mainstream acceptance continues unabated despite the pandemic.
Reasons why there has been a Significant increase in Crypto Prices:
- Shift in sentiment: This can be considered as one of the most important factors triggering a rise in crypto prices recently. Bullish trends are noticeable especially with Elon Musk declaring his endorsement of the Bitcoin. This was, however, followed by a crash when Tesla withdrew its support for BTC payments for its electric vehicles. He justified this change of decision on grounds of environment, citing concerns that fossil fuel usage would be exceptionally high because of crypto mining. Again, from July onwards, Elon Musk has been sounding more supportive in his endorsement of cryptos, saying that he owns BTC, ETH, and Dogecoin.
- Institutional adoption: Cryptocurrencies, particularly, the Bitcoin, have performed impressively during the Covid pandemic, when all other traditional assets seem to have been affected. The Bitcoin is being held as a safe asset against inflation and volatility. With the pandemic crippling economies, governments all over the world have been offering financial packages to revive the economy. This has caused inflation as expected but cryptos are unaffected by inflation. Public companies have started converting their cash into cryptos; Square, a US-based payment processor, purchased $50 millions of BTC. This belief placed on cryptos by corporate giants is making them more acceptable as a store-of-value. PayPal too has indicated its intention to introduce crypto buy-and-sell feature through its platform.
- Hash Rate Signals: Till recently, the biggest news was the Chinese crackdown on mining activities. This meant shutting down of computers which had been involved in crypto transaction processing. Prior to this decision, nearly 65% of the total global BTC mining was in China. With computers going offline, hash rate, which is a measure of computing power for mining, halved. With China’s aggressive stance, it became clear that the decentralized crypto was still at its government’s mercy. This affected public sentiment and created uncertainty. But this hash rate has now bounced back and is steadily moving upwards. The recovery has restored people’s confidence in the crypto market.
- Increased legitimacy: In the last year, many large consumer firms and financial companies have started embracing cryptos. This has given such assets greater legitimacy and driven up prices considerably. Banks, securities exchanges, and brokerages have been working hard to meet the increase in demand. There is growing speculation that Amazon may get involved in the crypto space; with the possibility of this happening, Bitcoin prices shot up. Walmart Inc. has also been asking for help with cryptos.
- Halving: Cryptos have limited supply; the Bitcoin, for instance is capped at 21 million coins. Bitcoin halving happens every 4 years when the reward value gets reduced by half. This doubles stock-to-flow ratio and makes the Bitcoin rather scarce. Halving has been one of the biggest reasons for driving up the BTC price.
These are some of the most important reasons why crypto prices continue to be on upward spiral, even as other assets grapple with the effects of the pandemic.