At the start of the 2020 year, Bitcoin (BTC) started off with a small drop from previous months, at around $7K USD. But by the end of the year, BTC was at $29K, a huge jump of 314% for the year. The current price of BTC at the time of this writing is $33K. But what has driven this giant price spike over the last year? Let's take a closer look.
Fundamentals
You have to look at the core of a cryptocurrency to see how strong it is, and if it's keeps it's fundamentals going, it will be poised for growth. Part of the Bitcoin fundamentals to look at is network hash rate. Hash rate measures the processing power of the entire network, and increases as more Bitcoin miners commit to it. A high hash rate effectively secures a network from attacks.
Compared to 2017, the current Bitcoin network hash rate is much higher, reflecting confidence. In 2020, we saw an all-time high hash rate of 146 million, which also resulted in an all-time high mining difficulty level of 19.99 trillion in early November.
Institutional Demand
You can't look back at the 2020 year and not see all the institutions getting into Bitcoin and cryptocurrency in general. Such as JPMorgan Chase, BlackRock, MassMutual, MicroStrategy, and PayPal. This was a huge year for big companies and players entering the market bringing with them billions of dollars in capital.
You can also see additional information about this in our OKExplainer video:
Retail Demand
As with institutional demand, it also brought a lot of retail demand with it. For example with PayPal's support of cryptocurrency, it allowed millions of people who have never heard of crypto before to be exposed to it. With the price rise, it brought new exposure from mainstream media as well, helping to fuel the interest from new users just getting into the market.
Derivatives Mature
Lastly, we have seen a maturity in the derivatives market, showing large growth. This was also driven in part due to the institutional demand, with an aggregate open interest in Bitcoin futures reaching an all-time high of over $10 billion in early January 2021. This growing crypto derivatives market is one of the fundamental factors supporting the Bitcoin bull run in 2020.
2020 Was A Game Changer
In comparing to the previous bull run year of 2017, a lot has changed in the three years making 2020 completely different in why the price skyrocketed so much. 2017 was mainly driven by the ICO hype, but this past year, was mainly driven by institutional interest, market maturity, and strong fundamentals.
Interesting aspects worth looking into. Can you help explain what caused the major cryptocurrencies to dip during the second week of January 2021.