Why does the Price of Bitcoin Continue to Increase?

Bitcoin has grown into an investment-worthy of being made by famous billionaire investors, large institutions, and retail investors. Here are some reasons why investors are so attracted to Bitcoin investments even after it has hit all-time highs.

1. Inflation and Declining Purchasing Power of the Dollar

The amount of circulating dollars has steadily increased since the gold standard was abolished in 1971 by Richard Nixon. However, the total dollar supply has increased from $273.4 billion to over $4 trillion between 1975 and March 9, 2020. Worse yet, after that date, the total dollar supply has disappeared from $4 trillion to over $6.5 trillion as of November 30, 2020, due to the coronavirus. related to the stimulus bill. The stimulus bill that is passed means that around 50% of the total supply dollar will be printed in 2020.

While many people have lost their jobs and businesses have been closed during this coronavirus, the increase in the total supply of dollars will result in the implication of the dollar's buying power due to the very high rate of inflation. To hedge an asset, investors look for an asset that can retain value. Many assets such as gold can be considered a store-of-value, although gold is indeed a rare resource, we cannot verify the total supply of gold on Earth. In the end, the search for investors led them to Bitcoin.

2. A Finite and Fixed Supply

Bitcoin distinguishes itself and is written in its code about how much supply will be available. We can verify with certainty how many Bitcoins are scattered around the world and how many will be available in the future.

Because the US dollar seems to be infinitely printable and causes inflation. The price of Bitcoin can certainly be linked to the fear of inflation and its use as a hedge against it and making the case for store-of-value assets more compelling.

3. The Halving

Further understanding why Bitcoin has a finite supply limit is essential to understanding the mechanism called The Halving. For every 210,000 blocks that are mined every 4 years, the reward that will be given to the miner will always be reduced by half. In other words, what is built into Bitcoin is a form of synthetic inflation because Bitcoin rewards given to miners add new Bitcoins into circulation. This inflation rate is cut in half every four years and this will continue until all 21 million Bitcoins are released to the market. Currently, there are 18.5 million Bitcoins in circulation or about 88.4% of the total Bitcoin supply.

Problems such as rising inflation and increasing the quantity of the US dollar decrease its value over time. With gold, there is a steady rate of new gold being mined from the earth each year, keeping inflation rates relatively consistent. Likewise, with Bitcoin, every halving increases the stock-to-flow ratio of the asset. The stock-to-flow ratio means the available stock currently circulating in the market relative to the newly flowing stock that is added to circulation each year.

Every Bitcoin that has been split in half has experienced a massive bull market that completely shattered the previous high. This is evidenced by the first Halving, which occurred in November 2012, which increased from around $12 to nearly $1,150 in a year. In July 2016, the second Bitcoin halving occurred. The price at the halving was around $650 and by December 17, 2017, the Bitcoin price had jumped to just under $20,000. The price then dropped over the year from this peak down to around $3,200, a price that was almost 400% higher than its pre-halving price. The third Bitcoin just happened on May 11, 2020, and its price has increased by almost 120%.

4. Institutional Adoption

In 2020, Bitcoin as a store-of-value has increased investor interest in investing in BTC. Some institutions, both public and private, have collected Bitcoin instead of holding cash.

Central banks and governments around the world are now also considering digital currency central banks (CBDCs) as potential assets. CBDC is not called a cryptocurrency because it does not use a decentralized system, the main supply control and regulations are in the hands of banks and the government. They still show the government’s role in a more sophisticated payment system than paper cash.

5. Maturity

In the previous year, Bitcoin has several problems, wallets, keys, exchanges, the on-ramp was confusing and complicated. But today, access is easier such as licensed and regulated exchanges that have spread all over the world. So, everyone can easily trade or invest in Bitcoin. The application of blockchain creates interest in investing but still fears the volatility that will be involved.

Archidax is one of the best crypto exchange platforms to buy, sell, trade, and store BTC easily and safely.

Source : f.a.s