Bitcoin rose in value at the end of 2020, thanks to increased investor demand for it, but its volatility is also worrying, will it keep rising or will its bubble burst?
The first cryptocurrency that appeared in 2009 set a record, in an economic climate affected by the health crisis caused by the coronavirus pandemic, says author Damien Licata Cariseau in a report published by the French newspaper Le Parisien.
Investing in safe havens like gold was a tempting idea, but there was another trend towards Bitcoin, which has seen its value increase dramatically, reaching more than USD 40,000 in recent days under the influence of rising demand.
It is difficult to conclusively determine whether this is a temporary boom or a real financial revolution because this virtual currency has experienced fluctuations in its short history that have questioned its viability.
Bitcoin doubled in 2020
According to Catherine Casamata, professor of finance at the Toulouse School of Economics, “scarcity creates value, the total offer of bitcoin in circulation is limited to about 21 million units since the system was designed, and as with any asset, the price rises when demand increases.”
Therefore, the reasons for these sudden purchases must be sought, and according to the analysis of Yves Laurent Kian, president of the coin plus, a startup in Luxembourg, “bitcoin goes through stages of development every 4 years and, having lived through the regulatory phase, in 2020 it has entered a huge adoption phase.”
For its part, says Catherine case, if more people buy bitcoin “because of the value of the currency associated with the ease of Use and further purchases by”.
There are also other parties that have indirectly boosted the value, for example, many online banks propose to invest savings in them.
Online payments giant PayPal, in October, launched a cryptocurrency buy, sell and pay service, which will ensure its 350 million users and tens of millions of partner merchants convert payments from bitcoin or Ethereum to local currency, making virtual currencies more popular thanks to Real markets.
Who buys bitcoin?
The use of bitcoin has spread relatively with the advent of dedicated platforms such as Paymium or Coinhouse in France, and it is also accepted by individual investors, just as it actually happened in 2018 before the price crash, these mostly buy small amounts and bitcoin divisions called Satoshi, and it takes 100 million Satoshi to get bitcoin.
Bitcoin hit record highs at the end of 2020, and the cryptocurrency appears to have partially ditched the definition that has long seen it as a means of salvation for illegal products on the dark web.
But activity in large quantities is mainly supported by institutions such as American or British funds, and Yves Laurent Kian said that those entities are “buying heavily at the moment because they are afraid to be left behind.”
Will the bubble burst?
“There is volatility-as with any other currency – because it is only monetary, there is no use-value, bitcoin cannot be consumed, the price of this currency depends on its future value, on the likelihood that it will be banned by countries and on traders who will accept it as a means of payment, and it is difficult to predict its future,” says Catherine Casamata
“We now have to treat bitcoin like any investment, i.e. sell it when it’s expensive and buy it back when prices fall,” Nigel Green, president of deVere Financial Consulting, explained at the end of December.
Instead of a sharp fall in prices as happened in 2018, analysts expect a correction, and “with a performance similar to the recent one, many investors and speculators will want to take profits at the first sign of weakness,” said Fouad Razakzadeh, analyst at ThinkMarkets.
The author calls this behavior natural, it reinforces the idea of a currency that is increasingly institutionalized and partially engaged in the economy while retaining its originality and decentralized character.