Bullish Bitcoin Returns
The Bitcoin Bull Run has returned, rising over 5% to $51,510 on Wednesday, leaving the year-to-date returns up by 75.32%, according to CoinDesk.
Is this a resumption of this year's powerful bull market or merely a correction following the steep plunge? New York investment bank Goldman Sachs has released that they plan to offer Bitcoin futures by the middle of March. This decision follows many other large investors viewing Bitcoin as a long-term safeguard against inflation; there has been an undeniable acceptance of Bitcoin as a legitimate asset.
So, what has caused this explosive growth and popularity of not only Bitcoin but of several other cryptocurrencies? What has led these big players in the financial sector to soften their previously hard-line attitude about digital currencies?
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Still responding to COVID-19?
We don't have the pandemic to thank for much, but it has undoubtedly been the driver for Bitcoin's bull run, gaining approximately 75% over the past year (CoinDesk). The large spread and high volatility of the cryptocurrency mean it will always have its sceptics. However, it will be interesting to see which big players follow in Goldman Sachs footsteps.
The havoc brought onto the economy by COVID-19 has led to substantial stimulus packages from governments and many central banks printing more money. As we all know, printing money drives inflation, which consequently declines purchasing power and drives the average price level up.
So, how is Bitcoin a hedge against inflation?
Last year, we saw Gold prices increased due to fear trades in the face of the COVID-19 pandemic. Gold is often used as a hedge due to its little correlation with other asset classes and limited supply, which also happen to be characteristics shared with Bitcoin, now dubbed the "digital gold".
So, now in the face of inflation, investments in Bitcoin have increased due to its similarities with Gold. Last year we witnessed Gold prices surge at the beginning of the COVID-19 pandemic; this year, we see Bitcoin, our increasingly popular digital Gold, doing the same in the wake of the Government's response to COVID-19.
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