What you need to know:
- The pivot from dollars to Bitcoins to shield from loss in value has raised its demand.
- Bitcoin's price appreciation is also attributable to its growing adoption as a payment method
If you are a cryptocurrency investor, it is hard not to get excited when looking at Bitcoin chart. In the past month, Bitcoin — the king of digital currency — has been bullish, hitting a high watermark of around $18,000.
This price was last seen three years ago when Bitcoin reached $20,000, its all-time high, before retracting to below $10,000.
In 2020 alone, the price of Bitcoin has more than doubled. Financial analysts now project that if Bitcoin were to continue this trajectory, its value could be around $100,000 late next year — more than five times its current value!
The big question is, what is lifting Bitcoin this high, this fast?
There is a raft of reasons. The quantity of Bitcoin is finite; its supply is capped at 21 million. There is only 21 million Bitcoin, and this number will always stay static. Bitcoin is, therefore, rarer than anything that has come before it. As the demand soars, so does the price.
Another reason for Bitcoin's meteoritic rise is the growing inflation of the US dollar. While inflation is on average two per cent each year in the United States, this year, the pandemic pushed up the inflation and diminished the dollar's purchasing power.
To hedge against the increasing inflation, many investors turn away from the dollar. They are taking shelter in assets that historically hold or appreciate value. Such assets include precious metals such as gold, stocks in less volatile sectors, and Bitcoin.
The pivot from dollars to Bitcoins to shield from loss in value has raised its demand. A growing number of companies, including some trading on the US stock market, are also beginning to convert their cash reserves to Bitcoin to cushion against loss of value.
Bitcoin's price appreciation is also attributable to its growing adoption as a payment method. Recently, PayPal — a leading online payment platform—announced that it would soon allow its users and merchants to accept Bitcoin as a form of payment. Several other Paypal competitors are following suit.
Worldwide, the popularity of cryptocurrencies is on the upswing. South Africa, Nigeria, and Kenya are leading in using Bitcoin for transacting business in Africa.
The Bitcoin boom in Africa is partly fuelled by the young, tech-savvy, and entrepreneurial populations, weaker local currencies that make it harder to get dollars. It’s also powered by remittances sent home by friends and family in the diaspora.
BitPesa, a company based in Kenya, uses Bitcoin as a medium for international money transfers. BitPesa cuts down on expenses such as money transfer fees.
Bitcoin is unregulated in many countries, leaving millions of interested but risk-averse investors watching from the sidelines. But as the saying goes, "what goes up must come down". Right now, the question on Bitcoin investor's minds is when the current Bitcoin surge will pause, and a pull-back begins before another run.
Samwambugu@gmail.com Twitter: @samwambugu2