If you have been following the cryptocurrency industry, then you may have noticed that Bitcoin finally exceeded its all-time high. Bitcoin investors have been quite ecstatic over this news. But many people are confused on why Bitcoin exceeded its all-time high.
This article will cover the multitude of reasons why Bitcoin has exceeded its all-time high.
5 Reasons Bitcoin Exceeded Its All-Time High
Here are the top 5 reasons Bitcoin exceeded its all-time high. Of course, no one knows exactly how much each reason contributed to Bitcoin’s rise in price, but all the listed reasons certainly had some impact on the mooning price of Bitcoin.
Mining Rewards Were Halved
One reason that contributed to the rise in the price of bitcoin was that mining rewards were halved in May. A halving event occurs roughly every four years, and it means that the bitcoin reward a miner receives for mining a block is cut in half.
This halves the incoming supply of Bitcoin. According to the law of supply and demand, if you have less supply, then the price will increase if all else is equal.
With that in mind, the halving event certainly contributed to Bitcoin exceeding its all-time high. There simply is less new bitcoin entering the market with the demand staying roughly the same or even increasing.
The price was bound to go up after the halving event.
Of course, there were other things going on in cryptocurrency that contributed to the price increase, which only compounded the increasing price of Bitcoin.
The Growth of Decentralized Finance (DeFi)
Another reason Bitcoin increased in price has to do with the increasing popularity of DeFi. For those that don’t know, DeFi is the cryptocurrency solution to centralized finance.
Loans, contracts, gambling, derivatives, and even insurance platforms all have DeFi solutions that rely on cryptocurrency.
More importantly, DeFi went from a paltry $500 million industry in 2019 to a massive $15 billion industry at the time of writing (December 2020).
This is important because all of that money is held in some form of cryptocurrency. Unfortunately, it’s not usually bitcoin because bitcoin does not work well with the Ethereum blockchain that most DeFi protocols use to build their applications.
However, Bitcoin is still the top cryptocurrency by a huge margin, so most of the altcoin transactions on DeFi will go through Bitcoin at some point.
This creates demand for Bitcoin, which in turns raises the price. It also raises awareness about cryptocurrency, and cryptocurrency is generally associated with Bitcoin.
Institutional Investors Are Investing
2020 will likely be known as the year that institutional investors finally began taking Bitcoin seriously.
It began in August 2020 when MicroStrategy CEO Mike Saylor announced that MicroStrategy would purchase Bitcoin. The price of Bitcoin soared $1,500 on that announcement. And the price continued to soar each time MicroStrategy purchased Microstrategy purchased Bitcoin.
As it stands, Microstrategy has nearly $1 billion dollars of bitcoin and will continue to purchase bitcoin to buoy the price of their stock. Wall Street called it a risky business decision, but it certainly played a major role in Bitcoin exceeding its all-time high.
Also, MicroStrategy is not the only Wall Street player that put some money in Bitcoin – they were just the first and largest of this bull run.
The credit card processor Square announced that they would purchase $50 million of bitcoin on October 9th. That’s a small amount for a company as large as Square, but it did cause a spike in price.
The real bombshell came when PayPal announced they would allow users to buy and sell bitcoin on PayPal some time in 2021. The price of bitcoin increased by over 10% in a few hours.
The PayPal announcement is what many consider the beginning of this current Bitcoin bull run.
Finally, Guggenheim Partners, an investment firm that controls Grayscale’s Bitcoin Trust, announced they would purchase an additional $500 million in bitcoin. This is what an important announcement because bitcoin was starting to decrease in value in the time between the PayPal announcement and this announcement.
It’s been a fairly consistent upward trend since the Guggenheim announcement, though.
One last thing, there have been the usual billionaires and other Wall Street types talking about the greatness of Bitcoin. This likely has some impact on the price, but the institutional investors gobbling up the supply of bitcoin likely played a bigger role in the increased price.
US Dollar Has Weakened
The price of Bitcoin is often compared to the US Dollar. But many people forget that the US Dollar can weaken. And that’s exactly what has happened.
The US Dollar has fallen about 10% when compared to a basket of other currencies.
This decreasing value of the US Dollar is mostly due to a weakened US economy because of the coronavirus pandemic. The Federal Reserve has also increased the printing of US currency, which is a surefire way to decrease the value of it.
Additionally, much uncertainty surrounds the future of the US Dollar. With all that uncertainty surrounding the US Dollar, the value of the currency has fallen and investor capital has found its way to Bitcoin.
Bitcoin Is Becoming More Acceptable As a Store of Value
Bitcoin is slowly but surely becoming more acceptable as a store of value. Many had their doubts when the price fell to $5,000 shortly after hitting $19,000. Fortunately, that sentiment disappeared as the price stopped falling and has stayed consistent.
This likely played a minor role in the price exceeding the all-time high. But it will play a large factor in the price staying above the previous all-time high for a longer period of time.
Plus, the negative sentiment surrounding Bitcoin drying up led to the institutional investors flowing into Bitcoin. It’s reaching the point where buying some bitcoin is the equivalent of purchasing some gold or other precious metals. It’s not there yet, but it’s only a few years away.
We hope that answered the question on why Bitcoin has exceeded its previous all-time high. The reasons are obviously varied, but it mostly comes down to institutional investors buying up bitcoin and DeFi increasing demand for the coin right when the last Bitcoin halving occurred.
It was really a perfect storm of multiple, independent events that led to the price increase. The good news is that the price does not look like it will drop anytime soon as more institutional investors will likely invest in the cryptocurrency and DeFi continues to grow.