In the past several weeks, the price of bitcoin has risen over 14%, from $8500 to $9750. This price jump has resulted a flurry of news articles surrounding the cryptocurrency. And over the same timespan, queries on Google concerning “bitcoin,” “bitcoin halving dates,” and “bitcoin awesome investment” have risen over 5000%. This begs the question: why?
The answer, which includes factors like consumer confidence, hyperinflation, and just plain market volatility, is fairly complex. But thankfully, we don’t have to look very far to see the big picture. Here are 3 reasons why bitcoin has been selling like hot cakes recently.
1. The “Halvening”
Every four years, there is an event programmed into the bitcoin code that slashes the reward for supporters of the blockchain in half. These so-called bitcoin “miners” expend huge amounts of computing power and electricity to solve complex mathematical puzzles. When the puzzles are solved, a precise number of bitcoins is rewarded. On May 11, 2020, that number of bitcoins decreased from 12.5 to 6.25.
The significance of the Halvening lies in the name; if demand for bitcoin remains the same, common sense dictates that the resulting decrease in supply will drive the price of bitcoin upwards. In addition, since there is a finite number of bitcoins in the world at 21 million, the true speculative end price of bitcoin should be far greater than any currently known commodity.
And if history is an indicator, it’s easy to see why bitcoin enthusiasts are excited. Following the first halvening in 2012, bitcoin prices rose over 10,000%. The second halvening in 2016 saw a more modest gain at 2500%, but still caused the cryptocurrency to reach its all-time high trading price of $20,000.
2. Paul Tudor Jones Invests in Bitcoin
Paul Tudor Jones is one of the most recognized traders in the world. His hedge fund, Tudor Investment Corporation, has an estimated $10 billion in assets under control, with Jones himself boasting a net worth of over $5 billion. Jones is most well known for predicting the Black Monday crash in 1987, resulting in a payday of roughly $100 million, not adjusted for inflation.
Recently, Jones has become one the first so-called “whales” of Wall Street to invest in Bitcoin. Although his position is reportedly only 2% of his total assets, that number still amounts to over $100 million.
This is significant because bitcoin has long suffered from a “learning curve” of sorts. Many traders are hesitant to integrate the technology into their portfolios, for a variety of reasons. Here are some examples:
I would rather have bananas than bitcoin. [At least] I could eat bananas — bitcoin, not so much. — Mark Cuban
Cryptocurrencies basically have no value. You can’t do anything with it except sell it to someone else.— Warren Buffett
The idea is that if Paul Tudor Jones is willing to incorporate cryptocurrency in his portfolio, other whales might follow suit. And consequently, hobbyist traders in the general populace may be more willing to take the leap, further driving the price of bitcoin up.
3. Hyperinflation Might be Coming
The Federal Reserve of the United States has been printing a lot of money recently. Oh wait, I forgot to bold that. The Fed has been printing A LOT of money recently. As of the publication of this article, over $6 trillion has been distributed to stem the economic havoc wrought by the coronavirus.
The process the Fed goes through to print its money is fairly complicated, so we won’t go over that. But the bottom line is that with the direct injection of so much cash into the economy, there is a very real possibility that inflation will follow.
In times of inflation, many traders will turn to the markets to stockpile their capital. However, in times of economic crisis, securities become more risky, which leaves one option; commodities. Gold and silver, in particular, have long been touted as safe havens during economic duress. But there’s a new kid on the block, and his name is bitcoin.
The arguments for bitcoin over precious metals during inflation are simple; bitcoin is not limited by a supply chain like metals are, and unlike the metals, bitcoin’s issuance has become more limited with time. Because of the recent and future halvenings, investors who subscribe to its ideology tend to be more bullish on cryptocurrency. The idea is that the potential upside of bitcoin and other cryptocurrencies is much greater than the potential upside of other commodities like precious metal due to the fact that there is a hard quantifiable limit on the number of bitcoins in the world.
But as of right now, no one can say for sure what will happen. However, due to these 3 reasons, it’s easy to see why so many people have been frolicking into crypto land recently.