Updated: Jan 10
As we look to put a forgettable year behind us, Bitcoin is looking sharper than it has ever been. Though investing hasn’t been on the minds of most people in a pandemic and joblessness-ridden year, the token has been hard to ignore. Some of the staunchest critics of it have been sat down by it and it is even beginning to feature in everyday conversations.
So what has led to this meteoric rise that has surpassed the highs of 2017? Many things have been touted as possible reasons including; dumping of fiat currencies, increased knowledge and awareness of Bitcoin, as well as ease of investing through smartphones and apps. Those reasons have strings of credibility attached to them but the below reasons stick even more according to most experts and analysts.
1. Pandemic inspired fiscal action
The pandemic has almost nearly wiped out the small and medium business man or woman. With people unable to go out to eateries, night clubs, bars and barber shops, businesses have shut down and jobs have been lost. Some jobs may never come back again even if we get to a post-pandemic era soon. To cushion people from the economic drawdowns, the Fed has resorted to printing more money and stimulus packages.
Though these are necessary moves on paper, the side effect is the weakening of the US dollar. Bitcoin which has been termed as digital gold by some has been the safe haven of the year for those looking to retain and even increase the value of their money.
2. Stay at home buy orders
COVID-19 has had people rotting indoors this year and that has taken a toll on many things. Though most people invested their time on Netflix subscriptions and other forms of entertainment, a good number of people took the time to look up “Bitcoin”. Apps like Robinhood reported surges in investing volumes throughout this year with many being crypto traders as well as stock option traders rushing in. With money had to come by, some people may have been looking at quick cash-out opportunities. Bouts of FOMO among people most likely led to more and more buy orders.
3. The entry of smart money
If you thought PayPal joining the fray was a big deal, then BlackRock’s crypto job advertisement this week should sit you down. Yes, PayPal is huge and things will get even better if they open up their crypto trading service beyond the US. When it comes to institutional interest, it doesn’t get bigger than BlackRock though. The $7.8 Trillion asset manager announced that it was looking for a VP to head its Blockchain operations and people in the community lost their heads. With money bags like BlackRock now interested, you would be crazy not to dip your toe in this warm crypto bath. Big moves like these are price movers and that’s partly why your crypto portfolio is a sea of green right now.
There are a host of other possible reasons why the BTC price has rallied as impressively as it has this year. As the price nears $40,000 as we begin 2021, many more people are looking to buy but should they?
Bitcoin looks attractive as ever and you increasingly look like a fool for not buying because of the impressive price action. Celebrities are also talking, the media is bleating about it and even your gossipy aunty mentioned it over Christmas. Some have touted BTC to get to highs of almost 40K before a correction and if this is true then buying now would be a sound investment. Here are a few reasons why you may want to tread carefully as we go into the next couple of weeks though.
1. Possibility of feeding whales
Summer doesn’t last forever; at some point, the rain will start pouring down so get ready. Just as any good sports team enjoying a winning streak is due a bore draw or a loss, BTC too is due a mighty correction. As you place your buy order at these soaring prices, there is an increasing possibility that you are buying a top. How long till the whales decide to pick up all our buy orders for sells and slide down the chart like rockstars? This has been the story of many retail traders across many asset classes. Tread with caution even as prices continue to rise.
2. XRP VS SEC
With the regulatory hammer coming down on XRP over claims of trading unregistered securities, exchanges have been left shook. The likes of Coinbase and Bittrex have screeched away leaving XRP to fight its battles alone. Though the charges on XRP have nothing to do with the likes of Bitcoin, there is a fear of a domino effect on the whole industry. Just like when the cops do a sweep at your neighbor’s house, there is a natural fear they might take an interest in your house and find something to book you for as well. Asset classes are allergic to fear and that may show on price charts soon.
3. Ripple 29th December Statement
Ripple Labs vowed to fight the charges leveled against it by the SEC through a troubling statement on 29th December. The statement claimed that the SEC’s allegations against Ripple were “an attack on the entire crypto industry” in the US. If this claim is to be believed, then worrying times lie ahead for the entire industry. Like you read earlier, asset classes are allergic to fear. Though it’s highly unlikely that cryptos are going anywhere, regulators like the SEC bring fear even to the most solid of industries.
The objective of this write up is to give you a clear picture of where we stand now and how things might play out in the near future. Take your time, analyze and make sound decisions as we walk into hopefully a brighter new year. Tread carefully and stay healthy, happy New Year and happy trading from the dWeb Guide team.