2020, in a year that brought the currency valuations to suffer due to the Covid-19 havoc, a cryptocurrency managed to register a notable rise with a surprising comeback. In 2020, Bitcoin surged by over 200%. The cryptocurrency which was almost written to be taken off by the analysts after the 2018 dreaded crash, has shown a sharp rise in its valuation this year. Presently the value of a Bitcoin is around INR 20 lakhs or US$ 27,000. With the present market valuation of Bitcoin at US$ 500 billion it is even more than the popular e-merchants like Walmart MasterCard or Visa.
But what led to this meteoric rise of Bitcoin and will it crash soon or it well keep rising, what are hidden challenges and what is the future of cryptocurrency, there are many questions coming up and we have tried to find a few answers here.
When the first cryptocurrency Bitcoin was introduced in 2009, no one knew it would have the huge market it is delivering today. The way Bitcoin has transformed the digital payments and the scope it carries; it has a really bright future ahead. But the reasons and challenges of Bitcoin should be counted equally as its promising future while considering its aspects.
Why is Bitcoin rising?
Most financial analysts believe the meteoric rise of Bitcoin is due to the Covid hit year, particularly the pandemic hit year offered the perfect environment that the cryptocurrency needed. As there was a growing acceptance for the digital currency in 2020 with the traditional currencies and assets taking off because of the global economic crisis, it got the perfect ground. Also the interest rate hitting rock bottom for the traditional investments also fueled the rise of Bitcoin, and as a result of which new investors invested in the cryptocurrency. With new investors joining in, the value of Bitcoin hiked to US$28,000 in the year end, which was just US$ 7,200 in the year beginning.
A few reasons for the Bitcoin soaring are:
Increase in demand by institutional buyers: Bitcoin saw a huge demand from the institutional buyers as most of them saw it as the hedge against present inflation as under the original programming of the network only unlimited 21 million Bitcoins can be ever created.
Decline of US dollar in the foreign exchange market: The US Dollar Index dropped against the major world currencies like Japanese Yen and Euro by around 6.8 % in 2020 and this is a key for Bitcoin as its price is denominated in United States dollars.
Retail purchase: Even individuals are speculating the price of Bitcoin and with the big financial services like PayPal to enable the purchase in 2020 made it extremely easy to buy Bitcoin.
What are the remaining hidden challenges?
Bitcoin has managed quite well to shine in the thunder of Covid hit 2020 but there are several concerns which still are in the future of cryptocurrency.
- Bitcoin is known for its extreme volatile nature and wind swings with quite many regulatory hurdles. The Bitcoin returns on offer might be better than the traditional investments but the risk involved is also way much higher because of the volatility seen in the cryptocurrency market.
- If the meteoric rise of Bitcoin continues the digital coil can face even further scrutiny for regulations. Many investors and financial strategists have predicted that Bitcoin trade in the cryptocurrency industry can witness strict regulations in the coming future particularly in the United States.
- How countries will regulate the cryptocurrency trading will decide most of the things about the coming Bitcoin trends and at the present such trade remains uncertain at large. However most of the experts believe digital currency will improve its position this year still they want investors to be well prepared for the wild volatility and sharp corrections involved.
As the economists are predicting Bitcoin will be witnessing a great change in the coming years. As this digital currency will enter the markets, more credibility will be added to it making it a more feasible option than any other currency.
Future outlook
The real future aspect of Bitcoin is more into a debatable context, as suggested by cryptocurrency advocates, the market of cryptocurrency will be increasing in the coming five years to be around $5 to $10 trillion.
Bitcoin offers a lot many advantages with it but with the same, it has many disadvantages. So predicting the future of Bitcoin is not really possible, however, it definitely has a promising future as per its present valuation and popularity. But it is needed to see the volatility sliding in as well. For now we can be satisfied with the fact that Bitcoin is the cryptocurrency that revolutionized the digital currency market and has created new expectations for the cryptocurrency investors. It certainly has something better to promise than now.
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