Why the 2020 bull run is different
For critics, the 2017 bull run was just a flash in the pan. In 2020, the bears aren’t so confident. Here’s why.
Bitcoin is now a household name
Perhaps the reason why the first bull run of 2017 took so long is because it had so much heavy lifting to do.
Noone had heard of cryptocurrency. Worse still, the technology was new and use cases were limited. People were reluctant to invest based on what it might be able to do in the future.
Three years on, the cryptocurrency industry has grown exponentially. Cryptocurrency is already being used in daily life. From gaming to payments, cryptocurrency now has a wealth of use cases, with more being created every day.
Money printer goes brrr
The coronavirus crisis left governments short of money and faced with some monumentally expensive problems. To pay for the millions of newly-unemployed citizens and businesses that need bailing out, governments need money. But hold on, there’s none left! With fiat, there’s only one solution: Print more.
The scale at which new currencies have been created this year is truly staggering: nearly a fifth of all dollars in existence were created this year. As a result, central bank balance sheets have risen by more than 20% of their GDP since the crisis began, mostly to buy government debt.
Each new dollar created makes the ones in your pocket worth less. As we know, prices creeping up and currency purchasing power declining is a recipe for one thing only: inflation.
Here’s where Bitcoin can break the cycle. There are two schools of thought: The first is that Bitcoin is deflationary because its purchasing power increases over time.
The second is that it is inflationary due to new Bitcoin entering supply unbacked by gold. Despite this, there is a fixed supply of 21 million, meaning that Bitcoin’s inflation rate will eventually shrink to zero, giving it yet another advantage over the dollar long term.
Institutional investment in crypto is piling up
It’s not just private investors that are diving into cryptocurrency. Institutional investors have also ramped up their activities in the sector.
Previously, institutional investors approached cryptocurrency with caution, if not outright scepticism. They are now beginning to come around spectacularly, as the story of Michael Saylor, CEO of Microstrategy, most prominently exhibits:
After additional purchases in December 2020, Microstrategy now owns 70,470 BTC in their treasury.
For banks in particular, the element of risk associated with crypto made it prohibitive in its earliest years. Institutional investment tends to deal in millions. This means that securing the storage and transfer of funds is vital. Security in crypto is now finally up to a scratch, meaning the suits can shift millions around with ease.
Counterparty risk was also a barrier for institutional investment. This is the probability that one of the parties involved in a transaction could default on its obligation. In the early days of cryptocurrency, accounts and trades could be made without any kind of ID. With KYC and anti-money laundering measures now more widespread, regulation serves to hold registered traders to account, making the cryptocurrency industry safer for all.
The first bull run fuelled a mania of short-term speculation, where investors scrambled to get hold of Bitcoin for the first time, only to cash back out into fiat.
The 2020 bull run is a different beast entirely. Investors clearly don’t see the prices dropping like they did in the 2017 bull run. Now, they’re buying Bitcoin and don’t plan on selling it any time soon.
In fact, the stock to flow model suggests a drastic increase of price within a two-year time frame. If this is proven correct, the next ‘psychological barrier’ Bitcoin needs to break through isn’t $30,000 but $100,000.
In 2020, HODL FOMO is real. More investors know about Bitcoin than ever before, but as we now know, there isn’t enough to go around. Don’t get left behind, open your Bitwala account now.