Bitcoin’s price appears to have continued to rise in recent weeks. But what is driving this expansion? It turns out that a wide range of factors continues to drive up the value of Bitcoin. You can find many cryptocurrency exchanges online, like bitcoin circuit trading platform.
Previous Resistance
Bitcoin has experienced extremely volatile peaks and troughs throughout its history, and its most recent high was near $14,000 in June 2019. At this point, Bitcoin encountered stiff resistance and failed to break through.
If Bitcoin had broken through that resistance in June, it would have triggered a bull market. Unfortunately for Bitcoin bulls, it did not succeed and fell to a low of nearly $3,800. The resistance has been consistent; getting its highest of $61,000 in November and after that taking another dip, and now it’s getting back high. The many speculations on Bitcoin prices lead to a price increase.
Inflation and the Rush to Secure Assets
Another factor driving Bitcoin’s rise is the rising value of the US dollar. While inflation averages 2% annually, recent stimulus spending will likely increase inflation and significantly reduce the dollar’s purchasing power.
The recent stimulus packages have added approximately $2.4 trillion to the US economy. Many people are concerned about the inevitable decline in the dollar’s purchasing power and the rise in inflation.
To protect themselves from rising inflation, people have abandoned the dollar in favor of assets that have historically held or even increased in value. Typically, assets into which people convert their dollars to avoid inflation or volatile markets are scarce or less volatile. These safe-haven assets include precious metals, stocks in less volatile industries, and Bitcoin.
Rising Production Costs
Another reason Bitcoin rises is that as the mining network grows, so makes the mining complex, which raises the marginal cost of producing a Bitcoin. Bitcoin mining uses lots of energy. The actual price miners must pay in their local currency. Because Bitcoin’s protocol requires one block to be found every ten minutes on average, directing more hashing power to mine does not increase the rate of new supply – it only increases the difficulty of mining. Although mining is becoming more complex, here are more insights on Bitcoin trading. According to research, the price of a Bitcoin has closely tracked its marginal cost of production.
Adoption as a Payment Method
Another reason for Bitcoin’s price increase is its increasing acceptance as a payment method. PayPal (PYPL) recently announced that its users and merchants would soon buy, sell, hold, and accept Bitcoin and other cryptocurrencies as payment.
This news immediately increased the value of Bitcoin. PayPal has nearly 350 million users who can now easily buy, store and use Bitcoin. In addition, PayPal has over 20 million active merchants who can now accept the currency.
Investment by Institutions
As previously stated, there is a growing narrative that Bitcoin is a safe-haven asset. In today’s societal and economic climate, there is an increasing incentive to keep less cash on hand and to be hedged against volatile market swings. Recently, a trend began in which publicly traded companies converted money in their treasuries to Bitcoin as a more reliable store of value.
The Stock-To-Flow Model and Halving
Perhaps the most important reasons for Bitcoin’s price increase are two characteristics inherent in its design.
The first is that there will only ever be 21 million Bitcoin, and there will be no more or less, and this number will remain constant. And this makes Bitcoin scarcer than any previous currency. Other low assets are not entirely finite, and users can sometimes synthesize them.
The second is a process called halving, and it’s vital for Bitcoin. Bitcoin, in essence, has its built-in escrow mechanism through which it releases and distributes new coins to miners as their reward for validating transactions. Every four years, the system cuts this reward by half. And this reduces the risk of Bitcoin inflation.
