Bitcoin price is reaching its peak of recovery…What are the causes and repercussions?

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Bitcoin prices rose astonishingly from about 6 cents – almost 11 years ago – to more than 34.000 US dollars early this year, to record their highest levels ever.

Bitcoin prices have increased by more than 300% over the past year, 50% last month, and 10% in the first days of this year only.

Whereas the number of Bitcoin units in circulation currently stands at approximately 18 million 590 thousand and 169 units and taking into account the value of Bitcoin at its maximum increase these days, the market value of Bitcoin exceeds $ 630 billion, thus exceeding the value of long-standing financial companies such as Visa And Mastercard and PayPal, but Bitcoin occupies the ninth place in the world in terms of market value.

Here are the reasons for this resounding rise in Bitcoin recently:

Fear of a decrease in the purchasing power of the dollar

Late last year, the United States adopted an economic stimulus package estimated at $ 900 billion, after it approved $ 2.2 trillion at the start of the Corona pandemic outbreak in March 2020, bringing the total stimulus packages to $ 3.1 trillion to recover from the effects of Corona on the economy.

This huge amount raised investor concerns about high inflation, a declining dollar, and a decrease in its purchasing power, which prompted them to rush to buy Bitcoin to store money, preserve value, and hedge against any future decline in the dollar.

And unlike paper currencies such as dollars that can be printed whenever governments and central banks want, regardless of the growth of goods and services available in the market or not, which may result in a significant rise in inflation and a sharp increase in prices, it is impossible to print any additional quantities of Bitcoin that automatically resist inflation. And it is distinguished by its scarcity as the metal of gold, as the total money supply of Bitcoin cannot exceed 21 million units in circulation, a number that can only be achieved in 2140.

The laws of mathematics and software guarantee a steady and planned supply of new Bitcoin releases, as, within the framework of what is known as the mining bonus, 6.25 new configurations are issued once every 10 minutes on average, which allows controlling the money supply of this currency, and thus controlling inflation.

To ensure that the highest ceiling of the number of Bitcoin in circulation is not reached until after 119 years, the mining reward is reduced in half approximately once every 4 years, as its value at the start of trading Bitcoin was 50 in a formation, and the current reward became 6.25 in configurations as of 2020.

Dollar_Bitcoin
It is impossible to print any additional quantities of Bitcoin, which are anti-inflationary automatically and are as rare as gold

The growth of institutional investment

Recently, the increasing use of Bitcoin as an asset and a store to save value and money prompted many people and institutions to invest in this currency.

Many analysts attribute the reasons for this tremendous rise in the value and price of Bitcoin to the huge institutional investment in this digital currency, after investing in it in the past was limited to amateur persons and small investors, especially in light of the regulations, laws, and legislation that were limiting the involvement of major financial institutions in Bitcoin.

The Financial Times reported that Britain-based investment management company Ruffer had invested about $ 745 million in Bitcoin since November 2020, which represented about 2.7% of the company’s managed assets at the time.

Motivating use as a means of payment

PayPal’s announcement to allow its customers to use cryptocurrencies in the buying and selling process constituted a huge moral leap for Bitcoin, which doubled the demand for it, leading to an increase in its prices.

Starting this year, the company’s users will be able to use Bitcoin to make purchases from its network of more than 26 million merchants.

In order to avoid extreme price fluctuations in Bitcoin, when the customer wants to use the Bitcoin currency for payment, the company will immediately convert Bitcoin into a fiat currency, and the transaction will be settled with the merchant using this traditional currency, such as the dollar, for example.

Organizational development

Some analysts believe that to provide a sustainable environment for Bitcoin, develop its activities, and provide a legal protection umbrella for its dealers, it is imperative to enact regulatory legislation that frames the use of Bitcoin and regulates the conduct of activities related to it.

In this context, the New York State financial authorities announced the launch of a license known as “Bitlicence”, which aims to legalize and regulate the practice of cryptocurrencies in general, especially Bitcoin.

From this standpoint, institutions and companies wishing to establish bitcoin exchanges in New York state, for example, must obtain this license first.

Some countries have recently rushed to legalize Bitcoin, and some central banks recently announced the launch of their own cryptocurrencies using Blockchain technology.

These legalization and regulation measures contributed to raising the level of confidence of dealers and investors in Bitcoin, which opened the door wide to the huge influx of capital by various investment institutions as well as hedge and retirement funds to invest in Bitcoin.

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PayPal’s announcement to allow its customers to use cryptocurrencies was a huge leap for Bitcoin

The rise of Bitcoin taxes

After decoupling the dollar from gold, the only guarantor of the dollar’s ​​value became the US government and the US Federal Reserve, and one of the main arguments of the proponents of paper currencies was that governments accept – and even impose – that taxes be paid using legal paper currencies – not backed by a precious metal like gold – such as the dollar. For example, this contributed to creating a demand for these paper currencies and contributed to their stability over the years.

On the other hand, hackers have also been able in recent years to impose ransom payments on their victims using the Bitcoin currency, which led to the rise of what became known as Bitcoin taxes, which became a competition and even parallel government taxes, which also contributed to creating additional demand for Bitcoin and contributed to At their high prices.

The pitfalls of competing currencies

While Bitcoin is the largest cryptocurrency in the world, XRP is the third-largest cryptocurrency in the world.

Bloomberg reported that late last year, the US Securities and Exchange Commission accused Ripple Labs In – the owner of the currency of XRB – and its senior executives of misleading investors in XRB from During the sale of more than one billion dollars of this currency without registering with the committee, and the company was referred to the court.

This legal action undermined dealers’ confidence in the XRB currency, which led to an immediate decrease in its value by approximately 16%.

On the other hand, this measure also led to investors’ migration from this currency towards Bitcoin, which resulted in an increase in demand for Bitcoin and increased its prices.

Source: Websites and Agencies

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