Synopsis

Cryptocurrencies, especially Bitcoin, is now being considered as a safe-haven asset against market volatility and inflation. The current societal and economic climate also brings about a situation for people to hold less cash and stay hedged again...

By ET Spotlight SpecialLast Updated: Feb 09, 2021, 01:21 PM IST

The cryptocurrency market has continued to witness a boom despite the global pandemic wreaking havoc on all significant economies on the planet.

Many crypto startups have emerged in the space during this pandemic to cater to the ever-increasing demand for Bitcoin and alike cryptocurrencies

For instance, CoinSwitch Kuber recently announced the raising of $15 million (Rs 109 crore) Series A funding from leading global fintech investors such as Ribbit Capital, Paradigm, Sequoia Capital India and prominent angel investor Kunal Shah from CRED

Cryptocurrency market capitalisation fueled by Bitcoin’s growth recently crossed the $1 trillion mark. Out of which, Bitcoin, has been on a bull run for quite some time and is responsible for roughly 69% of the total market value.
Bitcoin was ₹6,00,000 and today Bitcoin is trading for ₹25,00,000 which is approximately a 400% rise in the price. Ether, the second-largest cryptocurrency in terms of market capitalisation, crossed a new high of over ₹1,00,000 and rose over 1,000% in value in one year.

Similarly, many cryptocurrency prices have been on the rise, and investors are wondering why. Here are five reasons why cryptocurrency prices are rising:


Institutional Adoption

Cryptocurrencies, especially Bitcoin, is now being considered as a safe-haven asset against market volatility and inflation. The current societal and economic climate also brings about a situation for people to hold less cash and stay hedged against market swings.

Recently, there has been a trend where public companies are converting their cash treasuries into cryptocurrency. Square, an American payments company, bought $50 million worth of Bitcoins. Following this, Microstrategy- a public listed company in the US, converted $425 million worth of cash reserves into Bitcoin, considering it to be a better store of value.


Many companies have since followed this trend. The confidence of corporate giants on cryptocurrencies has added more merit to it as a currency and value store.

Paypal & Cryptocurrencies

In October 2020, the global digital payments company Paypal announced that it would be launching cryptocurrency buying and selling features on its platform.

The launch included four majorly traded currencies, namely Bitcoin, Bitcoin Cash, Ethereum, and Litecoin. Paypal has also announced plans of allowing transactions to be made using cryptocurrencies.

Paypal is known to have 350 million users who will now be capable of adopting crypto as a payment means. Also, its 30 million merchants will have the option of receiving payments in crypto.

Paypal was one of the critics of cryptocurrency as a sustainable currency. Now it is one of the biggest names jumping on the bandwagon. Along with others and PayPal's support, there has been more demand for the asset class, thus contributing to its price rise.

Apart from Paypal, the company also owns another popular payment platform Venmo which will expose another 40 million users to crypto payment. While these platforms are new to crypto, some other platforms are already making crypto payments wider.

As several private investors seek to adopt cryptocurrency as a means of exchange, many governments are also trying to regulate the market.

Many countries like Japan, USA, Germany etc. have taken a positive stance towards cryptocurrencies.

Bitcoin Halving Driven Scarcity
It is not news that most cryptocurrencies in the market have a limited supply. Bitcoin is also one of them. This year the third Bitcoin Halving took place.

Bitcoin halving is an important event in the Bitcoin network that happens every four years.

The Bitcoin network works because it introduces new bitcoins in the market by a process called Bitcoin mining. Bitcoin miners do this mining by verifying Bitcoin blocks which are simply groups of Bitcoin transactions.

Every 10 minutes, a miner who can verify one block of transactions and add it to the Bitcoin network gets awarded a certain amount of bitcoins as a reward.

Currently, this reward stands at 6.25 BTC per valid block mined. But this reward per block reduces by half roughly every four years, or after every 210000 blocks are mined. This phenomenon of Bitcoin block reward getting reduced by 50% every four years is termed as Bitcoin halving.

It also doubles the stock to flow ratio (total currency available: total currency in circulation) making is highly scarce.

Halving is one of the most critical factors that contribute to the price of Bitcoin.

Since there are only 21 million Bitcoins in total, there is less circulation of the market currency as the reward decreases. And as more people become aware of the asset's scarcity, more demand rises, resulting in a higher price.

Since Bitcoin holds more than half of the market capitalisation, the Bitcoin price variation may affect other currencies.

Easy Accessibility To Public
Cryptocurrency is a digital currency that can be used as both - a store of value and a mode of exchange. While it has just started to gain attention as a legit payment method, it has established itself as a new asset class over the past decade.

Even if the public is unwilling to use it for transactions, many want to convert their cash into crypto because they believe that its deflationary nature makes it a better store of value and a hedge against inflation.

Especially in India, after the RBI ban against cryptocurrency was lifted, its investors had a significant surge.

Many platforms have launched and received funding in this space to make crypto investing accessible. One such platform is CoinSwitch Kuber- acquiring over two million users in just six months after it launched.

As cryptocurrency is becoming more accessible to the public, more retail investors want a share of the asset class and are willing to pay more.

Bottom Line
If the rising prices in the crypto market have got you thinking that it is too late to invest in cryptocurrencies, understand that this is just the beginning.

With more countries seeking to regulate the market, cryptocurrencies will become mainstream.

Disclaimer: This above is non-editorial content and TIL hereby disclaims any and all warranties, express or implied, relating to the same. TIL does not guarantee, vouch for or necessarily endorse any of the above content nor is responsible for them in any manner whatsoever. The article does not constitute investment advice. Please take all steps necessary to ascertain that any information and content provided is correct, updated and verified.