Digital currencies are back in the media spotlight with a bang as the most widely-recognised crypto, bitcoin, posts an impressive 200-percent rally.
Kristian Rouz – The world’s best-known cryptocurrency bitcoin has gained an unexpected boost, surpassing the $12,000 threshold and hitting its highest since January 2018. Experts say the bitcoin rally was triggered by Facebook’s plans to launch its own cryptocurrency, as well as the latest rise in popularity of so-called “stablecoins”, which are pegged to fiat currencies.
Bitcoin posted its 15-month high of $11,247.62 on the Bitstamp crypto exchange Sunday, later retreating 1.9 percent to $11,039.62 the following day. The rally comes amid rising optimism among investors, as cryptocurrencies appear to be regaining trust and are being gradually admitted into mainstream finance.
Digital currencies attracted close attention worldwide in late 2017, when Bitcoin surged above $20,000 over a few weeks. Detractors at the time alleged cryptocurrencies were a short-lived speculative phenomenon, and their only use could be for the financing of criminal activity and terror, as well as to avoid financial rules and regulations.
That rally fizzled out quickly, and digital currencies fell out of the news cycle. However, now bitcoin appears to be back, and – unlike in 2017 – many experts say cryptocurrencies are here to stay.
“Smart money and institutions have certainly begun to come in”, John Patrick Mullin, a Hong Kong-based blockchain expert said.
Bitcoin’s resurgence is attributed to Facebook’s recent announcement, in which the social media giant said it would introduce a cryptocurrency of its own, known as Libra. Investors began to buy bitcoin and other cryptocurrencies thereafter in the hopes that Libra would be used by a wider audience of Facebook users.
© REUTERS / DADO RUVIC
A 3-D printed Facebook logo is seen on representations of the Bitcoin virtual currency in this illustration picture, June 18, 2019
Another reason behind the bitcoin surge is its upcoming “halving” in May 2020. “Halving” refers to a scheduled decrease in rewards for bitcoin miners – in other words, starting next May, miners will get less bitcoin for solving equal amounts of math problems.
This will decrease the supply of the coin and make the mining process more costly as well as time- and energy-consuming. In anticipation of a possible spike in bitcoin’s value, many investors have decided to buy bitcoin now.
The reward for bitcoin miners cuts in half every four years by its default algorithm in order to prevent inflation.
“Bitcoin always does a 200-percent pump within one year before the halving and another much, much bigger pump in the year after the halving”, Marius Kramer of the crypto investing company Ember Fund in Stuttgart, Germany said.
Additionally, some say the anticipation of a new global recession, geostrategic tensions, as well as the adoption of cryptocurrencies by some nation states – such as Venezuela – have also supported the bitcoin rally.
So far, bitcoin has already surged 200 percent year-to-date.
Still, many investors remain sceptical despite the growing confidence of bitcoin’s prospects as a legitimate asset and payment method. Many fear the intensified attempts to regulate or restrict the use of bitcoin by national governments and central banks.
Others are voicing concerns over the lack of a legal and regulatory framework , suggesting that bitcoin transactions in many countries could be put into the same bin with money laundering or terror-financing.
It remains to be seen how long this new rally will last, and whether longer-term market fundamentals will eventually play a greater role in bitcoin price-setting than short-lived speculative trends.