Why Is Bitcoin Going Up? Everything to Know
By Beluga Research October 7, 2023
- There are numerous potential factors driving the upward trend of bitcoin's value in the cryptocurrency market
- Bitcoin's price has been increasing due to factors such as increased institutional adoption, growing retail interest and global economic and geopolitical uncertainty
- Institutional investors like Microstrategy and Block (formerly Square) have added bitcoin to associated balance sheets, signaling confidence in long-term potential
- Bitcoin's decentralized nature, limited supply and global acceptance contribute to the value appreciation and make it attractive as a store of value
There are numerous potential factors driving the upward trend of bitcoin's value in the cryptocurrency market. Some common reasons include increased adoption and acceptance as a store of value or digital gold, growing institutional interest and investment, positive sentiment among investors and macroeconomic instability that drives people toward alternative assets.
Additionally, news about regulatory developments, technological advancements and market trends can impact bitcoin's price, making it a dynamic and complex asset influenced by a range of factors.
A Brief History
Bitcoin's journey has been marked by milestones that shaped the growth and adoption of the cryptocurrency. Initially, bitcoin had little value and was adopted by tech enthusiasts and cypherpunks. However, as more people recognized the potential, the demand for bitcoin increased, leading to the first notable price spike in 2011.
In 2013, bitcoin reached a price of over $1,000 for the first time, attracting media attention and entering the mainstream consciousness. However, the price soon experienced a sharp correction, leading to a period of volatility and uncertainty.
In 2017, bitcoin's price skyrocketed to nearly $20,000 due to increased mainstream awareness, growing institutional interest and the emergence of initial coin offerings (ICOs). A subsequent bear market followed, and bitcoin's price dropped to around $3,000 in 2018.
Since then, bitcoin has gradually recovered, with the price steadily climbing over the years. In 2020, amidst the COVID-19 pandemic, bitcoin experienced a renewed surge, attracting institutional investors and serving as a hedge against inflation. This trend has continued into 2021's all-time high near $70,000 and sparking discussions about underlying causes.
Why Is Bitcoin Going Up?: Everything to Know
- Increased Institutional Adoption - One significant factor contributing to bitcoin's upward movement is the growing acceptance and adoption by institutional investors. Established companies, financial institutions and hedge funds now see bitcoin as a legitimate asset class and a store of value. Prominent institutional players like MicroStrategy and Block, also known as Square, entering the bitcoin market provide validation and confidence to other investors.
- Store of Value and Inflation Hedge - Bitcoin's limited supply and decentralized nature make it an attractive investment for preserving wealth or hedging against inflation. With central banks implementing expansive monetary policies globally, concerns about inflation and the erosion of fiat currencies' value have increased. With scarcity and a fixed supply of twenty-one million coins, bitcoin offers a potential safeguard against inflation and a store of value outside the traditional financial system.
- Growing Retail Interest - Alongside institutional adoption, retail interest in bitcoin has also surged. The accessibility and ease of investing in bitcoin through various platforms and exchanges make it appealing to individual investors. Additionally, the younger generation, comfortable with digital assets and technology, has shown particular interest in bitcoin as an alternative investment opportunity.
- Technological Advancements - Continuous development and improvement of the Bitcoin network have contributed to the associated rising popularity. Enhancements in scalability, transaction speed and security have made bitcoin more efficient and reliable as a digital currency. Further, integration of layer 2 solutions, such as the Lightning Network, has addressed scalability concerns associated with Bitcoin's main blockchain.
- Global Economic and Geopolitical Uncertainty - Bitcoin's ascent can also be attributed to global economic and geopolitical uncertainties. Political instability, trade tensions and concerns about the traditional financial system have led individuals and institutions to seek alternatives. Because it is decentralized and detached from any specific government or central authority, the Bitcoin network offers a borderless and censorship-resistant form of value transfer.
To understand why bitcoin is going up, it is important to grasp the fundamentals of the cryptocurrency. Bitcoin was invented in 2008 by an anonymous person or group using the pseudonym "Satoshi Nakamoto." It operates on a technology called "blockchain," a distributed ledger that records all transactions.
Bitcoin gained attention for the potential to revolutionize the financial industry by providing an alternative to traditional banking systems. It has since evolved from a niche project to a global phenomenon, attracting both retail and institutional investors.
- Decentralization - Bitcoin operates on a decentralized network, meaning it is not controlled by any central authority or government. This ensures no manipulation or control over the currency's value or transactions. Bitcoin is seen as a hedge against government interference and inflation, attracting those seeking financial sovereignty.
- Store of Value - Often called "digital gold," bitcoin is resistant to inflation due to a limited supply. It can serve as a reliable store of value, and the decentralized nature and cryptographic security make it highly resistant to hacking. These qualities make bitcoin attractive for preserving wealth.
- Institutional Adoption - Over the years, there has been significant institutional adoption of bitcoin. Major companies interact with bitcoin, and bitcoin exchange-traded funds (ETFs) wil make it easier for institutional investors to gain exposure to the cryptocurrency. This increased institutional interest drives demand and price appreciation.
- Global Acceptance - Bitcoin is widely accepted as a means of payment and store of value worldwide. Businesses in various industries accept bitcoin, expanding utility and demand. In countries with economic instability or restricted access to traditional banking, bitcoin provides financial inclusivity and opportunities.
- Decentralization - Because bitcoin operates on a blockchain, there is no single authority controlling the currency, making it resistant to censorship and government interference.
- Limited Supply - There is a maximum supply of twenty-one million coins that can ever exist of bitcoin. This scarcity has contributed to the associated value appreciation over time as demand continues to grow.
- Security - Advanced cryptographic techniques are used to secure bitcoin transactions. Public and private keys ensure that only the intended recipient can access the funds, providing a high level of security and reducing the risk of fraud.
- Global Accessibility - Anyone with an internet connection can access bitcoin, regardless of location. This has opened up opportunities for individuals in countries with limited access to traditional financial systems, enabling them to participate in the global economy.
- Lower Transaction Fees - There are typically lower fees associated with bitcoin transactions, especially for international transfers, compared to traditional financial institutions. This makes it an attractive option for cost-effective solutions.
- Speed and Efficiency - Bitcoin transactions can be processed quickly, especially when compared to traditional banking systems. This speed and efficiency are particularly beneficial for international remittances or online purchases.
- Volatility - The value of bitcoin is highly volatile, with frequent and significant price fluctuations. This volatility makes it a risky investment, as the value can both rise and fall rapidly.
- Lack of Regulation - Bitcoin operates outside the realm of traditional financial regulations as a decentralized currency. While this provides privacy and freedom, it also exposes investors to potential risks such as market manipulation and fraud.
- Scalability Challenges - The growing popularity of bitcoin has revealed scalability challenges within the network. The limited block size and processing capacity can result in congestion and slower transaction times during periods of high demand.
- Energy Consumption - Bitcoin "mining," the process of creating new coins and validating transactions, requires substantial computational power and energy consumption. This has raised concerns about the environmental impact, especially as the network expands.
- Potential for Criminal Activity - The pseudonymous nature of bitcoin transactions has associated it with illicit activities such as money laundering and the purchase of illegal goods. Efforts have been made to improve transparency and compliance, but these concerns still exist.
- User Responsibility - Bitcoin places the responsibility of security on the individual user. This means that if proper precautions are not taken, such as using secure wallets and safeguarding private keys, there is a risk of loss or theft of funds.