You may have seen Bitcoin back in the headlines recently, as the cryptocurrency has seen a massive rise in value since the beginning of the year. Bitcoin recently hit a record high, surpassing $400,000 a coin in January 2021. But what has caused this and is this rise likely to be followed by a crash?
Why is Bitcoin’s Value Rising?
There are a whole host of factors that can affect the changes in bitcoin value. When we consider Bitcoin simply, the more people trust it as a form of currency, the higher the demand, and as the demand rises the value rises. Many new investors are also alluding to the current state of the world as a reason to invest in Bitcoin. For those who have lost some faith in centralised governments and institutions it makes sense to invest in a currency not linked to a government or institution.
Will This Rise be Followed by a Crash?
In 2017, a famous Bitcoin rally ended in a huge crash, after record highs Bitcoin value plummeted. It would be easy to assume, based on the general laws of the market cycle that this current rise will also likely be followed by a drop. However, many believe that this rise could be different and that Bitcoin could continue to rise.
The one major difference in Bitcoins 2020 rally is that institutional investors are now starting to adopt Bitcoin as a form of investment. This gives new sway and legitimacy to the cryptocurrency and will likely reduce the perceived risk of investing in a cryptocurrency.
Many bitcoin wallets hold at least one Bitcoin, meaning that wealthier investors are adopting Bitcoin as a form of investment and currency. As Bitcoin’s value is not linked to an asset or a government, people’s faith in Bitcoin plays a large role in the fluctuation of it’s value. Recently, large players in the fintech industry have begun to accept Bitcoin as a currency, including PayPal, which now allows customers to pay straight from their bitcoin wallets.
As Bitcoin becomes more and more of a recognised currency and the number of investors rise it is not foolish to think that Bitcoin could continue to rise in value. This sentiment is certainly being echoed by many prominent investors and financial minds.
Is Bitcoin a Safer Alternative to Traditional Currency?
Many news sources are suggesting that Bitcoin is in the midst of a bubble, and the one thing we all know about bubbles is that they burst. So, it is certainly untrue to say that bitcoin is a completely safe investment choice and currency, however, it would also be wrong to suggest it is not. If there is one thing that the last year has taught us it is that there is a certain fragility to the current structure of our society and the institutions that govern it. While our traditional currency has the ‘security’ of being linked to a centralised government, many are beginning to find that more of a worry than a comfort (find out more at Bitcoin Era).
Many would consider Bitcoin a safe investment because of the technology that was used to build it as well as the money which can potentially be made from investing in it (for more information click here). Blockchaining means that ever Bitcoin transaction is by a network of people around the world, instead of by a centralised bank. In the $10 trillion worth of transactions done through Bitcoin, not one single transaction has been fraudulent. That is certainly more than can be said for any traditional banking system.
So, is Bitcoin 100% safe as an investment, no – there is no way to be certain that the value will not fall or even crash. But, by the same measure there is certain level of risk associated with any investment or any currency.