How is the current Bitcoin surge similar to or different from the 2017 bubble

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The cryptocurrency has risen astonishingly before, only to fall. However, an analysis of the reasons why it increased from USD 5,000 in March 2020 to USD 35,000 in January 2021 showed a very different picture.

It is not the first time that bitcoin has risen and rises . Already in 2017 it had a bubble , and what has happened since December 2020 brought back those memories: 12 years after the programmer Satoshi Nakamoto (a pseudonym of one or more people) launched it into the world, the crypto currency began the year of the coronavirus around USD 8,000 per unit, and in March it fell to just over USD 5,000. But in December it began to grow and on the 16th it reached USD 20,632 , which then set a record even above the values ​​of 2017.

In January 2021 it reached USD 41,000 and is currently around USD 35,000 . "Are we expecting a repeat of 2017? Is this bubble bigger, moving towards a more strident burst? ”Asked the British edition of Wired . In principle the situation seems very different.

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While that cryptocurrency boom had all the signs of mass hysteria - " novel and poorly understood technology , dubious promises of endless income, scores of petty investors burning their savings, " the publication described - this race it seems much calmer.

"There are fewer massive runs of people figuring something out and wanting to be ahead," said Lex Sokolin of finance and technology firm Consensys . The co-owner of the blockchain company analyzed search data on Google and found that in 2017 there was desperation to join the bitcoin gold rush, whereas now that phenomenon has not been repeated. "While it can hardly be considered a scientific proof, it does evidence a real change - this time it's not about inexperienced retail investors ," Wired noted . "Increasingly, they are the big guns in finance ."

“This time it's not about inexperienced retail investors,” noted the UK edition of Wired. “Increasingly, they are the big guns in finance.” (UNIVERSITY OF HAWAII IN MANOA / Europa Press)


In this kind of institutionalization of the mother cryptocurrency - there are others, such as Ethereum, Ripple, Tether , among others - companies such as MicroStrategy (cloud services), MassMutual (insurance) and SkyBridge (capitals) have bet heavily on bitcoin. " Between 2019 and 2020, investment funds focused on cryptocurrencies - led by bitcoin - doubled the assets they manage, from $ 1 billion to $ 2 billion , according to an analysis by PwC and Elwood," the article cited. "The cryptocurrency that emerged as an anti-establishment tool to avoid government detection and lubricate the cogs of dark markets is today being embraced by financiers ."

Another factor that allowed a calmer expansion of the interest in bitcoin is that some important fintech , such as PayPal and Robinhood , facilitated the paths for its purchase . But above all it mattered that the Office of the Comptroller of the Currency ( OCC ), an agency of the United States Treasury , authorized banks to provide "custody service" of bitcoin for their clients (that is, to hold bitcoin) and announced that they could participate in the digital infrastructure where cryptocurrencies are exchanged.

Beyond the immediate result of that, for Sokolin what is important is the message that it sends: " Regulators are investing time and effort to think about this, " he said. That could encourage older investors.

At the same time, the authorities are treating anonymous transactions with a heavy hand - those that bitcoin was born to promote - and threaten to impose exchange rules by which it will be necessary to know customers who use crypto currencies backed by state currencies , such as dollars or pounds . A kind of "domestication," Wired noted .

Between 2019 and 2020, investment funds focused on cryptocurrencies went from managing assets of USD 1 billion to USD 2 billion. (REUTERS / Dado Ruvic)

“Greater interest from institutional investors means two things for bitcoin: the volumes that are bought are usually higher than when they are traded by ordinary people and those volumes tend more to immobility , which makes the supply of circulating bitcoin more scarce , and that's why the price goes up ”, the text continued. He cited a Chainalysis report : In December 2020, bitcoin purchases under $ 10,000 fell 22% , while purchases of amounts over $ 10,000 and over $ 1 million (most likely made by large investors) ) grew by 9% and 32% respectively.

But there were elements of another kind that heralded the rise of the cryptocurrency, recalled Gian Volpicelli, author of the Wired article . The first is that halving , the halving of bitcoin , an automated process that occurs every about four years and reduces the rewards for miners (because the amount of bitcoins to be created is fixed, according to the software: 21 million), started on May 11, 2020 . The second is the COVID-19 pandemic .

“Bitcoin has long been proposed as a 'safe haven' asset - one that is not issued by a central bank and is therefore protected from the macroeconomic vagaries of the material world. The extreme hardships of 2020 might have convinced some that, given the general chaos, why not try something like that.

In addition, due to the need for governments to stimulate the economy, low or zero interest rates and excessive money printing - listed Marc Bernegger, of the board of directors of the Swiss firm Crypto Finance AG - added uncertainty to the prospects of the most nations, which is why “more and more institutional investors are looking for alternative ways to diversify their portfolios”. The cryptocurrency is considered by some to be a legitimate competitor to gold - JP Morgan said it could beat gold to a price of $ 146,000 .

The cryptocurrency that emerged as an anti-establishment tool to avoid government detection and lubricate the cogs of dark markets is today being embraced by financiers. (Andrey Rudakov / Bloomberg)

"This does not mean that there is no way for the price to collapse, " Wired continued . "Several observers think that the current race is at least partially due to algorithms that cryptocurrency funds follow a trend-tracking strategy, and in doing so they inflate the price to implausible levels." Some even suspect some fraudulent maneuver : Nouriel Roubini , the New York University professor known as “Doctor Catastrophe” for having predicted the 2008 crisis, “identified Tether (a private cryptocurrency supposedly pegged to the dollar, which can be used to buy bitcoin) as a manipulative force that sustains it. "

More generally, any change that big investors make will be echoed. "JP Morgan suggested that if the gigantic Grayscale Bitcoin Trust, a crypto investment company that concentrates 3% of the bitcoin that currently exists, reduces the amount it buys each month (at the moment it is USD 1 billion ) the price will inevitably change" .

Another change will happen throughout 2021, when the COVID-19 crisis begins to wane . "That would lead many investors in love with bitcoin to move their funds in other directions, " Wired concluded .

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