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Crypto investment: What’s behind BTC’s sudden rise?

crypto investment

Since the start of 2019, Bitcoin’s price has more than doubled against the dollar kindling stark feelings among two groups of people. The first, members of the crypto community who are excited, enthusiastic about Bitcoin’s resurgence. The second, people outside the first group who are confused about cryptocurrencies.

But there’s one thing common between these two groups. No one exactly sure why Bitcoin’s making a resurgence, although the first group has some clues. 

As of writing this article, 14th May 2019, Bitcoin was trading at a 10-month high of around $8000, on the other hand, BTC dominance was at a whopping 59% (source)- the highest it’s been since December 2017.

crypto investment


So what’s behind the price surge?

It’s hard to pin one reason down because most likely there’s more than one reason behind it.

So here are all the plausible reasons behind the Bitcoin’s price surge and market dominance.

Institutional investors are betting on crypto

Last week, Fidelity Investments announced its plan to start offering its client Bitcoin trading within a few weeks. Fidelity had also begun custody service of Bitcoin earlier this year. The firm even spawned Fidelity Digital Assets in October of last year to cater to Wall street’s growing appetite for digital assets. Read more about it here.

But this is not Fidelity’s first venture into crypto, they’ve invested in a couple of crypto companies. Check out Fidelity’s crypto investment portfolio here. Interestingly, according to a study conducted by Fidelity- a whopping 47% of institutional investors think digital assets are worth investing in.

So what’s so head-turning about Fidelity Investing getting into crypto? The company is among the largest asset managers in the world with a whopping $2.46 trillion currently under management.

Another example would be that of Grayscale Bitcoin Trust which is a fund that invests only in Bitcoin. According to a report by The Block, institutional demand for Bitcoin seems to be increasing. Grayscale’s assets under management have hit a 10-month high of $1.4 billion, according to source.

Geo-political effect

Is there a chance that the ongoing trade war between the US and China contributed to Bitcoin’s price surge? Bitcoin had spiked by 30% since president Trump slapped 25% tariffs on $200 billion worth of chinese goods (source). Hence Bitcoin’s price surge could be fuelled by worried investors dumping stocks, who’s price will go down drastically due to trade war, and instead buying Bitcoin. 

In addition to this, the price surge could also be fueled by Chinese investors dumping the Yuan for Bitcoin as the cryptocurrency could be relatively better at holding its value. Although the sources for reasoning could not be confirmed.

The scarcity mindset

If you don’t know, Bitcoin protocol rewards miners for validating transactions on its network. Currently that reward is 12.5 BTC, but by May 2020 this amount will reduce to 6.25 BTC. What’s interesting is in the past, price surges in Bitcoins were on the heels of halvening events. Why? Because halving event reduces the total number of BTC being introduced into the market. A large demand but limited supply, it’s basic economics. 

Bitcoin network gains a technical edge

Bitcoin was intended to a peer-to-peer payments platform on a global scale by its creator Satoshi Nakamoto. But it’s not quite there yet. Why? One of the reasons is because of Bitcoin’s technical limitations, currently on 7 transactions per second can be processed which pales in comparison to current global payment platforms like VIsa( max 50,000)

But technical teams around the world are looking at ways to improve Bitcoin networks speed. One solution shows promise- Sidechains like the Lightning network or the latest Lumino projects. The Lumino project which went live recently is capable of handling 5000 transactions per second.

All these theories are equally plausible but it’s difficult to pin down one specific reason for Bitcoin’s price surge. Nevertheless, for most retail investors why there price surge is often not important but whether or not it did is.

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