Author: Bitstop

Bitcoin has experienced a lot of up and down movement in the last two years, a period that has marked many first all-time highs for the asset. In early January 2020, Bitcoin was trading at around $7,200 and has been steadily climbing since then. In January 2021 the asset took less than a month to surpass $40,000 from $28,000 in December 2020 and on April 14, 2021, it reached a peak of more than $65,000.

Certain factors such as institutional interest fueled the price upward, causing the price to reach its all-time high of $68,000 in November 2021, an 844% increase since then. Bitcoin however experienced some lows, trading below $30,000 in July 2021. It has since recovered and is currently trading above $43,000.

In this period, Bitcoin has been used as a store of value by many people, jaded by the state of the economy especially after the onset of Covid-19.

What gives gold value

In order to understand the value of bitcoin one must understand the origins of currency itself. The value of gold has been influenced by the many use cases of the asset such as expensive jewelry, store of value, means of exchange and as an artifact meaning it is a high worth commodity. Over the years the demand for gold has increased as the amount in central bank reserves has significantly reduced, causing scarcity. As such, the inefficiencies in demand and supply have pushed the value upwards. Additionally, the supply of gold is finite given that it is mined in a few places in the world. Therefore, although there is demand for the commodity, its supply is limited.

What gives USD value

The gold standard was the monetary system used by countries such as Britain and the U.S. where the currency was directly linked to gold. In 1971, President Richard Nixon announced that the U.S. would no longer follow the gold standard which converted dollars to gold at a fixed value, giving USD value as it was the only accepted means of payment.

Fiat money is a more flexible instrument to the current complex financial world and USD has served as a means of payment for many years. The currency is also used as the standard currency unit in which goods are quoted and traded and through which payments are settled in the global commodity markets.

What gives BTC value

Bitcoin is a consensus network that enables a new payment system and a digital monetary system. It was the first decentralized digital-peer-to-peer payment network that is powered by its users, eliminating central authorities and middlemen. The creator of Bitcoin, Satoshi Nakamoto, made it a decentralized platform without hierarchical structures seen in many organizations that have contributed to inequality, and lack of transparency.

The decentralized nature of the network has created value for Bitcoin, as control and decision making are not set by a small group of people. All users of the platform have power to make decisions, making it hard to corrupt the system.

Bitcoin introduced the blockchain system that has been adopted by hundreds of platforms to ensure security, transparency and public records on the technology. Without Bitcoin, most of these systems could not exist today. Therefore, the value of Bitcoin can be reflected from the success that these projects that have adopted its technology have attracted, as well as their solutions in the ecosystem. The blockchain technology has consequently revolutionized the way organizations function, ensuring transparency of tasks and decisions as well as making sure records are publicly accessible to users.

The supply of Bitcoin is maxed at 21 million, meaning that there can only be that number in existence in the world. The set number has introduced a fear of missing out (FOMO) in the public who have held large quantities of the asset before the last remaining millions are mined. On average, these Bitcoins are introduced at a fixed rate of one block every ten minutes. The number of BTC released in each of these blocks is reduced by 50% every four years, with the last halving, as it is commonly referred to, having happened in May, 2021. Currently, close to 19 million Bitcoins have been mined.

In many ways, Bitcoin is considered a digital gold. For instance, Bitcoin cannot be created randomly as it requires mining like gold, although Bitcoin is mined through computational means. The mining process ensures that transactions are validated, flow of the asset as well as actors in the system are compensated. The value of this mining process validates Bitcoin as an asset in the financial system.

Effects of the pandemic on Bitcoin

The pandemic is attributed to the burst in activity of Bitcoin because it shut down the economy. The government policies fueled investors’ fears about the global economy, resulting in the rise of Bitcoin, since it could not be regulated by federal governments.

The pandemic also crashed a huge part of the stock market in March, 2020 causing the government to print more money. Consequently, investors and large corporations resulted to holding their assets in BTC as supply is capped at 21 million. Investors were looking for more alternatives to serve as a store of value.

The release of the stimulus checks caused a rebound of Bitcoin from March lows and led to the achievement of new all-time highs. The checks also increased concerns over inflation and a potential weakened purchasing power of the USD leading to inflation. The narrative drew more institutional interest to Bitcoin, leading to multiple companies adding BTC to their balance sheets.

Conclusion