The digitization of the markets is also partly the reason for the spectacular rise of Bitcoin. We wrote about Bitcoin in 2018 – Even then, it became easier to buy and spend. More recently, PayPal has been accepting transactions in Bitcoin, and more and more retailers are accepting them.
However, this gradual expansion of Bitcoin’s presence as a medium of exchange does not explain the increase in value. At the time of our last article, Bitcoin had hit a high of around £ 15,000. At the beginning of 2020, Bitcoin peaked at around £ 30,000, which is an increase of around 100%.
Should you have invested then? Maybe, but you should be prepared for some staggering volatility. Mohammad warns: “Within 12 months of the £ 15,000 high, Bitcoin’s value fell to around £ 3,000, a loss of 80%.”
All assets go up and down, if not as extreme, but how can you tell which direction Bitcoin is going from £ 30,000?
The problem is, you can’t.
“Bitcoin is a completely speculative asset,” says Mohammad. “In itself it has no intrinsic value and no real connection to the general economy. Other “stores of value” like gold have a well-understood relationship with economic conditions, and particularly inflation, based on a track record dating back thousands of years. It is not exactly known how Bitcoin – if at all – is influenced by the economic framework. “
Another factor driving both the GameStop phenomenon and Bitcoin’s rise in value is market liquidity.
“A decade of low interest rates has left investors with a lot of cash, and the availability of investments has arguably not kept pace,” says Mohammad. “This makes alternative assets like Bitcoin attractive, especially when bond yields are so low.”