When the Covid-19 pandemic hit the globe at the beginning of 2020, many sectors were adversely affected. For instance, the hospitality and airline industries took a dip due to travel restrictions and lockdowns. Bitcoin was also hit in March 2020 by the financial impact of Covid-19. However, the effect was not long-lasting.
While gold has been vaunted as the go-to store of value, bitcoin emerged as a serious challenger. The bitcoin price proliferated in the Covid-19 period. The price increased from $5,000 in March 2020 to an all-time high of over $63,000 in April 2021.
Bitcoin is constantly making headlines with new highs every month and driving other assets with it. So what has caused this massive increase in price in the middle of the pandemic, you ask? Well, Covid-19 has proven to be a blessing in disguise for bitcoin. Here is how it has boosted the massive bitcoin price increase.
Shift Toward Digitalization
To curb Covid-19 effects, many states resorted to instituting lockdowns and curfews. Although this move has various negative effects, it has caused a shift toward the digital world. While remote working was a trend in pre-Covid times, the pandemic accelerated the use of digital technology. Even ordering groceries for delivery is now the norm.
As people gravitate toward the digital world, the adoption of remote financial services has also increased. In turn, this has boosted bitcoin adoption. All you need is a good internet connection to buy and sell bitcoin, making it a perfect option for international transactions.
Hedge On Inflation
The effects of Covid-19 have forced the government to provide stimulus packages to keep the economy afloat during the pandemic. In addition, central banks have resorted to printing more money, causing inflation and affecting people’s buying power. According to Forbes, the U.S. Federal Reserve is “tolerating” inflation running above its 2% targets, signaling a tolerance for more price increases.
Bitcoin is, therefore, becoming a preferred store of value in light of the inflation threat. Central banks also view digital currencies as the future. For instance, the Chinese and Russian governments plan to roll out central bank digital currencies (CBDCs).
Effects On Traditional Banking
The coronavirus has forced banks to close their doors. With traditional banking on the decline, most people had to look for financial options outside brick-and-mortar banks. Bitcoin has proved a great option for people wishing to move from decentralized banking systems and for those underserved by banks. For instance, a bank account is not required to transact with bitcoin.
Ease Of Investment
With many investments hit adversely by the pandemic, investors are looking to diversify their portfolios. Bitcoin investment is proving a great investment choice due to its digital nature. With bitcoin becoming a preferred investment asset, the demand is growing significantly. This has contributed to pushing the price to new highs.
Safe Haven For Investors
Gold has been a dominant safe haven asset in the past. This means the asset performs well in volatile markets by retaining its value even when the market performs dismally. Regardless of the market fluctuation, the asset value is safe. After Covid-19, bitcoin is also emerging as a safe haven for investors. While it was initially affected by the pandemic, it has rallied to record high prices. Bitcoin has endured and gained value during the pandemic, making it a potentially perfect safe haven for investors.
There can only be 21 million bitcoins, according to the existing protocol. Currently, about 18.5 million bitcoins are in circulation. Also, the reward for verifying new bitcoin blocks halves after every four years. Currently, the reward is 6.25 bitcoin from 12.5 in previous years. As the reward decreases, the supply of new coins also reduces. The resulting scarcity is superior to that of precious metals.
Improvement Of Bitcoin
With an increasing demand for bitcoin, firms dealing with it have upscaled their operations technology. The transaction system is now seamless and fast. One of the major concerns has been bitcoin mining methods. Mining methods have been associated with carbon emissions. However, miners are moving toward green options such as hydroelectric and solar-powered methods.
Protection From Political Interference
Lockdowns resulting from the Covid-19 crisis have affected trading activities, including the suspension of trading sessions. Investors concerned about central banks and political interference in the market are switching to a decentralized market. Since Bitcoin is not centrally managed, it is an attractive option for investors looking to hedge political risks.
Newcomers To Trading
The market has not been flooded only with new HODLers but also with new traders. The pandemic resulted in billions of people working from the comfort of their sofas or simply staying at home. With the time saved on commuting and few potential activities to spend their free time on, many people started spending more time online. Obviously, a large share of these people wanted to extract a certain financial benefit, hence online trading turned out to be an obvious choice. Even though many people were actual beginners to trading at the start of the pandemic, with available resources online like educational academies for brokers, various Udemy courses, subreddits like Wall Street Bets and a growing number of Discord channels, they could easily and quickly get started.
One of the main boosters of bitcoin price proliferations is the influx of large-scale investors, investment trusts and pension funds. The bull market is different from the one experienced in 2017, dominated by retail investors driven by the fear of missing out (FOMO). The retail trades were attracted by bitcoin scarcity and detachment from the global financial system.
Giant financial institutions like JPMorgan are setting up managed bitcoin funds that target benefits from its many opportunities. Similarly, MassMutual and billionaire investors such as Paul Tudor Jones have also invested massively in bitcoin.
Payment firms are also jumping on the bandwagon. PayPal is now allowing its customers to buy and sell bitcoin from their PayPal wallets. Visa has also liaised with exchange firm Coinbase to provide bitcoin-related debit and credit cards.
Bitcoin Is Now A Reliable Financial Instrument
Covid-19 has laid the groundwork for bitcoin to advance. First, it has accelerated monetary evolution and advancement into the digital world. People with no prior experience in online transactions had to adapt fast as brick-and-mortar banks closed shops. With high mobility and scarcity, bitcoin has become a new investment asset and store of value.
Bitcoin Has Withstood The Covid Storm
The correlation between bitcoin appreciation and the Covid-19 pandemic is clear. Bitcoin has not bowed to the coronavirus pandemic as other sectors remain seriously hurt. Its growth shows no signs of slowing down anytime soon. Although volatility is still a major concern among investors, there is massive optimism among traders. For instance, Citigroup forecast the price to hit $318,000 by December 2021.
That said, consumer behavior has significantly changed. Here is the point: Bitcoin mainstream adoption will continue as global digitization gathers pace.
This is a guest post by Michael Kuchar. Opinions expressed are entirely her own and do not necessarily reflect those of BTC, Inc. or Bitcoin Magazine.