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Bitcoin bulls have had little to cheer about since the mega-rally of three years ago that saw the bitcoin price rally from under $1,000 to nearly $20,000 in the space of a few weeks. That rally was a speculator’s dream but had all the makings of a massive bubble that could burst at any time. For instance, Bitcoin's big move in 2017 saw the leading crypto spend just a handful of days above $15K before it all came crashing down.
The current rally has, however, seen the BTC price record a 60% gain over the past 80 days and not a single daily pullback bigger than 5%, an impressive feat for such a volatile commodity. BTC has rallied 155% since the beginning of the year.
BTC has in the past failed to live up to its safe-haven and digital gold status. However, there are several reasons why the crypto could now be ready to shine.
Climbing a wall of worry
The Bitcoin outlook has mostly been mixed over the past few months.
The markets have been climbing a major wall of worry after Congress failed to agree to a pre-election $2 trillion stimulus package with little clarity whether a deal can be done in the so-called ‘‘lame duck’’ period spanning the date of elections and the next inauguration, leading to an overdose of pessimism in the markets.
The Congress stalemate could not have come at a worse time when the second wave of Covid-19 infections has hit many countries really hard.
A second wave of the pandemic has overwhelmed many European countries before the winter at a pace that has exceeded the most pessimistic projections. The new lockdown measures in Germany, France and Spain are reminiscent of the previous lockdown, requiring people to stay in their homes except when they need to buy essential goods, exercise for up to one hour a day or seek medical attention.
Further, the U.S. dollar appears to have stabilized after being in freefall since early June.
A big reason why safe-haven commodities like bitcoin, gold and silver have been shining since the March stock market crash is due to a weakening greenback. The inverse correlation between Bitcoin and the dollar has been unmistakable since the March crash, meaning tough times were expected for BTC.
Whereas pure market forces have been a mixed bag for BTC, several seismic forces have coincided with the mammoth rally: Recent activities by PayPal and Square.
About a month ago, online payment giant with ~350 million active accounts PayPal officially confirmed that it was entering the cryptocurrency market and pledged to make cryptocurrency “a funding source for purchases at its 26 million merchants worldwide.”
That was a 180-degree about-face after PayPal’s former chief executive Bill Harris labeled Bitcoin “the greatest scam in history.”
And now blockchain investment firm Pantera Capital says PayPal and Square have been guzzling up nearly every newly mined BTC leading to a shortage. Pantera says PayPal is buying 70% of all newly mined bitcoins while Square’s Cash App was buying 40%. Combined, the two are buying 110% of all new Bitcoins creating a 10% shortage in the market.
But these two are not the only big-time investors that have been warming up to bitcoin.
Mexican billionaire Ricardo Salinas says he has 10% of his liquid net worth invested in Bitcoin while the Senate recently blocked the nomination of Judy Shelton, an advocate for the return to the gold standard, to the Fed Board of Governors.
Meanwhile, BlackRock's CIO for fixed income Rick Rieder says bitcoin could take the place of gold because ‘‘It's so much more functional than passing a bar of gold around."
By Alex Kimani for Safehaven.com
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