Understanding Bitcoin’s Recent Surge

Bitcoin’s Run is Different This Time

On Sunday Bitcoin hit an all-time high of $34,000 per coin, continuing a surge that has been happening since early November. Then early yesterday morning, Bitcoin prices fell to as low as $29,316 before regaining ground later in the day.

Bitcoin more than tripled in value between October 3, when each coin was valued at $10,500, and Sunday’s peak. Some are comparing the recent run on Bitcoin to the cryptocurrency’s December 2017 peak and crash. The past several months have been the most active for Bitcoin since then.

However, some analysts say this surge for Bitcoin is different from the last one. This time institutional investors like JPMorgan (JPM), Guggenheim, and MassMutual have poured hundreds of millions of dollars into Bitcoin. These investors have said Bitcoin’s price could eventually reach $400,000 per coin.

Hedging Against Inflation

Some investors see Bitcoin as a way to protect themselves against inflation. Governments around the world are currently working to stimulate their countries’ economies, which have been battered by the pandemic.

Some investors are concerned about inflation that will result from these stimulus measures. Bitcoin is not valued against international currencies—rather, its value is based on a finite supply of mined “coins.” This means that the cryptocurrency will not lose value as a result of government stimulus measures. In fact, its value could rise as more investors invest in the cryptocurrency to hedge against inflation.

Volatility Ahead

Though more established investors are taking an interest in Bitcoin, analysts predict that the cryptocurrency is still likely to be volatile for some time. Though Bitcoin’s situation is different than it was during its 2017 rise and fall, the cryptocurrency is far from being settled.

It is worth noting that most large institutions are holding their cryptocurrency allocation around 1% or less of total assets under management. If major changes in Bitcoin prices occur, these institutions will be able to weather the volatility. However, for smaller firms and individual investors, that wave may not be as easy to ride.

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