Bitcoin (BTCUSD) passed $22,000 for the first time, jumping 14.7% between yesterday morning and today’s early hour trading. This means its value has more than tripled since the beginning of 2020.
A potential explanation for this new high valuation is that traders have been relying on cryptocurrencies to hedge against inflation brought on by global events and COVID lockdowns. Traditional benchmark currencies, such as the US Dollar (EUR/USD) and Pound Sterling (GBP/USD) have shown volatility this year as economies grapple with financial crises. Central banks have also increased the money supply to help their economies recover, which might speed up rates of inflation.
Bitcoin is often compared to Gold in that its valuation may rise even as other currencies fall. This, combined with the limited amount of coins that can be mined, may increase Bitcoin’s price due to demand outpacing supply.
Cryptocurrencies Become Mainstream
As 2020 comes to a close, UK and EU negotiations are showing the potential for a Brexit deal before the December 31st deadline. In addition, the US and EU are moving closer to approving a new round of financial stimulus packages. These talks have been going back and forth for months, potentially infusing uncertainty in global markets and driving people towards alternative forms of investments.
At the same time, companies like PayPal (PYPL) and Square (SQ) are beginning to accept Bitcoin as a recognized form of payment. This has given a boost to Bitcoin, as well as to other popular cryptocurrencies, and helped them gain acceptance in a year marked by economic uncertainty and volatility.
As stimulus talks across the US and Europe progress and the cryptocurrency becomes more widely used, it remains to be seen if Bitcoin’s value will continue to soar or if it will plummet, as it did after its previous high in 2017.