One of the major investment themes coming out of 2020 is high price bitcoin (CSC:BTC). However, the cryptocurrency slipped as much as 21% over a two-day period to as low as $ 32,389. Since the start of the new coronavirus pandemic, this is the largest two-day fall, wiping out nearly $ 140 billion in total market capitalization.
In a nutshell, investors responded to the stronger dollar and growing political uncertainty.
The cryptocurrency is still up around 89% on a one-month drag basis. Nevertheless, the collapse sent shivers down investors’ spikes. Summits and valleys will always be an integral part of investing in bitcoin. But I think this is just a matter of seconds, and normal service will resume soon enough. Covid-19 is surging once again in Asia, and President Donald Trump’s impeachment is deceiving the markets. The strengthening of the dollar and higher bond yields are also an important contributing factor to the fall in bitcoin prices.
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However, all these factors are temporary in nature. In the long run, bitcoin will continue to climb higher. Financial institutions are increasingly allowing consumers to buy, store and sell cryptocurrencies. That’s why in a recent Bloomberg Crypto monthly report, analysts predictions that bitcoin could more than double its current value in 2021.
Finally, Gain Wide Reception
The recent surge in bitcoin prices is due to a number of factors. A weaker dollar, economic optimism, big-ticket investment banks support the scarce digital currency against inflation, and a weakening US dollar for some reasons. However, I think the biggest contributor is higher institutional interest.
Square (NYSE:SQ), Paypal (NASDAQ:PYPL), Nvidia (NASDAQ:NVDA), a CME Group (NASDAQ:CME) all provide exposure to the cryptocurrency to their users. All of these companies are very diverse conglomerates. So it is difficult to identify how much money these companies make through bitcoin. However, given the surge in its price, it will make a significant contribution to the bottom line going forward.
Just as an example, Square Cash App generated $ 1.63 billion of bitcoin revenue and $ 32 million of bitcoin gross profit during the third quarter of 2020. This was up around 11x and 15x year-over-year, respectively.
The capital of Pantera research shows that PayPal and Square are securing all new bitcoin added to the market on a daily basis. That’s great news, especially for PayPal users. The online payment system provider allows its customers to buy, hold and sell cryptocurrencies like bitcoin and ethereum for as little as $ 1.
Likewise, a range of mid- or high-end graphics cards from Advanced Micro Devices (NASDAQ:AMD) sells out, leading to shortages in the markets. It’s mainly because cryptocurrency miners buy them in bulk to build machines to mine bitcoin and similar cryptocurrencies.
CME Group, the largest financial derivatives exchange, also offers bitcoin futures contracts. Until December 16, 2020, 8,560 Bitcoin CME futures contracts – equal to about 42,800 bitcoin – is traded daily on average. At the same time, the institutional benefit is ever increasing. The number of large open interest holders reached a record 110 in December.
Here to Stay
We’ve been here before. Highs and lows of dizziness are not a new phenomenon for bitcoin. However, the cryptocurrency is now finally gaining institutional support, which excluded it for a long time. It certainly helped the pandemic. During the wide locks, online trade and balloon payments, exponentially increasing interest in digital currencies.
Bitcoin was always volatile. But the past year has shown that all asset classes can become fragile in an uncertain environment. It was always considered an interesting store of value because of the finer 21 million ceiling and the difficulties in mining it. But its wider acceptance brings a sense of credibility and stability that had hitherto been missing.
To me, that’s what makes it an interesting asset to hold, despite the risks that come with it. The hope is that central banks will always issue their own digital money there. However, now that financial institutions are as big as BlackRock (NYSE:BLK) warms up to it, the future looks very bright for bitcoin.
At the date of its publication, Faizan Farooque (directly or indirectly) had no positions in the securities mentioned in this article.
Faizan Farooque is a contributing author for InvestorPlace.com and several other financial websites. Faizan has several years of experience in stock market analysis and was a former data journalist at S&P Global Market Intelligence. His passion is to help the average investor make more informed decisions about his portfolio.
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