What does cryptocurrency's past tell us about cryptocurrency's future?
Depending on who you ask about the future of cryptocurrency, you’ll get a different answer. Some analysts seem concerned about the risks that lie ahead, while others are confident that cryptocurrency has a stable role in our future.
Optimists may have a good reason to maintain their positive outlook. Despite the COVID pandemic and all of the economic chaos we’ve experienced this year, Bitcoin's mid-November 2020 run has surpassed all expectations, and the cryptocurrency is approaching its all-time high. Since December of last year, Bitcoin has more than doubled its value, and some believe this is just the beginning of a long bullish run.
Why Is Bitcoin’s Price Rally Different This Time?
A number of experts believe that the current Bitcoin surge (November 2020) bears little resemblance to its December 2017 infamous spike, when the currency broke all previous records.
Those who rushed into the legendary Bitcoin rally of the winter of 2017 were disappointed when the currency crashed shortly after. However, many believe that the previous surge was mostly facilitated by individual investors, rather than institutional support in the currency. When the individuals cashed out, Bitcoin’s price plummeted.
These days, Bitcoin is being promoted and supported by institutional investors. Big institutions like Fidelity Investments, JP Morgan and PayPal are taking steps into the crypto space. Fidelity has its own digital asset division, JPM has released its internal digital token and PayPal will allow users to pay via their crypto wallets starting next year. Moreover, big Wall Street hedge fund guys like Paul Tudor Jones have taken a liking to Bitcoin. Jones has even suggested that Bitcoin will be the anchor to hold us down against impending currency devaluation, similar to the role of the gold standard in the 1970s.
Not only are they supporting it by letting others buy it, they are buying it themselves. Big firms like Square and Galaxy Digital Holdings are actually stockpiling millions of dollars worth of Bitcoin. This is potentially good news, as it means that Bitcoin holders this rally might be less tempted to sell, since institutional investments are usually not bought with the intention of making a quick profit.
Another good sign about this run is that few seem to be paying attention to Bitcoin’s impressive growth. Back in 2017, Bitcoin’s surges seemed to dominate headlines and conversation, which made it so that many who had never cared for crypto began to invest, hoping to get rich. The frenzy was unsustainable, and resulted in the price falling greatly.
This time around, news of Bitcoin’s rally has settled into the background, and is only being discussed by those deeply involved in crypto and genuinely believe in the future of blockchain technology and its widespread adoption. Maybe there’s no frenzy this time because some are fearful that another fall is just around the corner. Or, perhaps, because this bull run may be the real deal.
Though many are proceeding with caution, there’s a lot of optimism surrounding the future of cryptocurrency in the new year and beyond. That being said, there are some risks to consider.
So, What Are the Risks?
One of the major risks of Bitcoin is that it remains incredibly volatile. It can shoot up over a short period and shoot down in a matter of weeks, days or even hours. Moreover, there are security threats that can arise like a 51% attack, where miners gain majority control and disrupt transactions.
However, the recent influx of institutional interest, as well as companies like PayPal making buying Bitcoin more accessible to people all over the world, mean that cryptocurrency is becoming a more certain fixture in our financial future.
