There have been some exciting days for crypto investors lately. Prices have surged above $10,000 for the first time since the start of this year with analysts expecting increased staying power.
Considering the rather abysmal performance of Bitcoin in 2020, these are indeed exciting times. Battered by the coronavirus pandemic and a tired economy, investors have begun turning their attention towards cryptocurrencies once again.
It has to be asked however, how long can this rally last?
Given that Bitcoin has demonstrably failed to keep prices afloat on throughout this year, now may not exactly be the time to invest in crypto.
But with falling earnings and a stock market buoyed by stimulus money, now may actually be the perfect opportunity to snap up some cryptocurrencies.
To give you a better view on things, let’s take a look at why Bitcoin prices have seen a sudden sharp recovery in recent days.
1. Investors are looking to get ahead of the crash
COVID-19 has shattered economies all over the world and forced nations to enter a state of self-enforced lockdowns. Despite attempts to reopen the economy and stimulate spending, consumption has fallen drastically.
Consequently, businesses have been forced to close up shop and earnings have taken a real hit. In the wake of all this, aggressive government stimulus packages have kept the economy afloat and allowed for a stock market rally.
Despite being in a recession, stock prices in the US have gone through the roof as investors scrambled to make the most out of the rally.
All good things must eventually come to an end however which would explain the sudden increase in Bitcoin valuations. Realizing that the stock market may be running on borrowed time, the price of gold and other safe haven investments has shot upward like a horse rising in the Kentucky Derby odds.
Seen by some as a kind of virtual gold, investors would have likely turned to investing in Bitcoin as a means of hedging their investments.
Due to its decentralized nature and the state of affairs in the US at the moment, Bitcoin does indeed appear to be an appealing investment. Something which may explain the sudden increase in value.
2. A successful halving
Halving as any crypto investor can tell you is an event in which the quantity of Bitcoins rewarded for mining is reduced by half. Long speculated by some to be the end of Bitcoin, it seems that most folk’s fears have been assuaged.
Taking the smooth transition as a positive sign, investors have gradually returned to Bitcoin. A turn of events that has proven to be beneficial for Bitcoin prices. The added optimism could also be seen to be a catalyst for new investors to enter the market.
3. Interest rate cuts
In a bit to encourage spending, the Fed has cut interest rates to record lows and implemented a variety of stimulus packages. Injecting all of this additional liquidity into the economy will undoubtedly increase inflation drastically.
With the US government printing cash at an unprecedented rate, investors looking to hedge against rising inflation have turned to cryptocurrency. As Bitcoin is not controlled by any single entity, it is relatively resistant to inflation.
Something in which creator Satoshi Nakamoto had in mind when he/she/they created Bitcoin. It is because of this that we’ve seen institutional investors treating Bitcoin as a kind of virtual gold which allows them to hedge against inflation.
It would appear that we’re set for another cryptocurrency bull-run given the data presented to us. With expectations of a uncertain economic outlook on the horizon, investors are sure to be sent scrambling for cover.