One thing’s for sure: Bitcoin is roaring back – and so are a number of other cryptocurrencies. This article delves deeper as to why.
#1 Migration Of Capital Toward Cryptocurrencies
In many countries like China, insecurities in both politics and the economy are fueling the Bitcoin currency’s price. For the wealthy in China, the country’s currency and China’s Communist Party-run central bank remain distrusted even less than more established currencies like the US dollar and the euro, each of which is governed by a more autonomous central bank.
Well-to-do people, particularly in China, are thus trying to hedge their investments and convert at least a portion of their wealth into cryptocurrencies like Bitcoin. Since mid-2016, a direct correlation between the exchange rate of the Chinese currency yuan and Bitcoin can be observed. If the Yuan appreciates in value, the Bitcoin typically depreciates – and vis-à-vis.
#2 Zero-interest era
Globally, investors are looking for investment potential in this era of zero or low interest rate policies implemented by major central banks like the European Central Bank or the U.S. Federal Reserve. This makes cryptocurrencies an attractive object of investment – most notably in view of their performance over the past few months. Aside from Bitcoin, the value of other currencies such as Ripple, Litecoin and Ether has also soared.
More well-established investors and hedge fund billionaires like Michael Novogratz have started to add ten percent Bitcoin and Ether to their investment portfolio. The combined market capitalization of all cryptocurrencies has soared by 50 percent in the space of a few weeks to a peak of more than 60 billion dollars. Of this, Bitcoin alone accounted for approximately one half.
#3 The Gold and Silver Are No Longer Sole Crisis Currencies
End-of-the-world forecasters traditionally gravitate towards gold and silver – currencies of crisis whose valuations invariably soar when economic turbulence is looming. Investors who fear a downturn in the economy now have found options in Bitcoin and the other cryptocurrencies.
However, like gold and silver, the quantity of digital currency units in circulation is limited – in contrast to traditional currencies, whose growth is under the control of central banks.
With gold and silver, volume is constrained because the precious metals are scarce and the resources are mined – with Bitcoin and most other cryptocurrencies, mathematical algorithms impose limitations on the volume of money that can be mined.
The storage of gold and silver is a costly proposition and has drawbacks: Ensuring the safekeeping of precious metals comes at a price. While certificates on precious metals can be acquired – it is questionable how much value they have in a genuine crisis. This is where the advantages of purely digital currencies that have no physical equivalent arise.
#4 Long-term Value Appreciation Increasingly Draws The Eyes Of Investors
The volatility of Bitcoin, and certainly of many other cryptocurrencies, has long been a hallmark of their history. However, there are clear signs that the long-term trends are in the direction of value stabilization. Most recently, Bitcoin has gained significantly in value – yet the rally now stretches over a very long period of time. Clearly, Bitcoin still continues to be more volatile compared to gold or established currencies like the US dollar and the euro, but a prolonged rally attracts more attention from investors.
#5 Increased Knowledge of Blockchain and Ethereum is Spreading
A burgeoning chunk of the population is not just catching on to blockchain technologies and Ethereum, they’ re also understanding what’s behind them. Various investors are focusing on the topic, in addition to a large number of developers who are pushing Blockchain and Ethereum technologies forwards.