Creak of wallet - cryptocurrency has turned into a new asset for investment

On the eve, the cost of bitcoin - the most popular cryptocurrency in the world - increased to $ 18.5 thousand, reaching a three-year record but then has decreased and is now about $17.6 thousand (at 12:00 Baku time). Since the beginning of the year, bitcoin has risen 2.7 times - from $6.9 thousand to $18.5.

For Bitcoin, this can be considered a record figure. In December 2017, it was above $20 thousand. Then, however, a decline down to $3.2 thousand was observed.

Now many analysts believe that the situation is fundamentally different from what it was in 2017, and bitcoin may continue to grow. According to Bloomberg analyst Mike McGlone, Bitcoin (BTC) hitting its all-time highs of $20,000 again is not the end but the start of its explosion to a $1 trillion asset.

It is an essential indicator since the larger the cryptocurrency capitalization, the less volatile it is.

For example, multi-million dollar purchases needed to influence the value of bitcoin. If the capitalization is small, like newly emerging cryptocurrencies, average traders can affect its price. Bitcoin's capitalization is now $ 327.66 billion.

Why is Bitcoin growing?

It began in March 2020 after a sharp drop. At the beginning of March, the cryptocurrency was worth about $9 thousand and in just a few days fell to $5 thousand. And then the growth began, which is conditioned by several factors. One of the main factors is the coronavirus. Bitcoin is gradually turning into a kind of "safe haven" in economic instability for the current generation, just like gold. Bitcoin is called "digital gold" for a reason.

Against the backdrop of the coronavirus and the economic crisis, central banks worldwide have begun to implement quantitative easing, which leads to additional emission of fiat currencies and, consequently, to their depreciation. That leads to lower rates and forces investors to look for new investment instruments.

But it's more than that. Recently, more and more institutional investors and billionaires have started investing in cryptocurrencies. For example, MicroStrategy has invested over $ 425 million in bitcoin, the founder of Twitter, through his other company, Square, acquired bitcoins for $ 50 million. The American holding Fidelity Investments has opened a bitcoin fund by which investors can hedge their risks. Also, PayPal has added support for four cryptocurrencies - Bitcoin, Etherium, Litecoin, and Bitcoin Cash. From November 11, users in the US can now directly sell, buy, or hold cryptocurrency through PayPal, which has over 300 million users.

All this suggests that bitcoin, and other cryptocurrencies, have confirmed their place in the market as financial assets.

However, some investors argue that if bitcoin is "digital gold", then the improvement of the world's economic situation can contribute to its cost reduction. According to some estimates, they can drop into $10-12 thousand.

There are additional problems as well. First of all, this is a ban on the use, and in some cases, tightening of regulation of cryptocurrencies in a number of countries. For example, in Indonesia and Pakistan, cryptocurrencies are entirely banned. Many countries are trying not to ban, but only to strengthen supervision over cryptocurrencies. But even here, not everything is rosy. Anonymity has always been one of the benefits of cryptocurrencies.

If countries completely oblige the owners of cryptocurrencies to provide information about themselves, for such people, this can lead to a decrease in interest in coins. This is not a ban on the use of cryptocurrencies, but just regulation.

According to some experts, tight regulation, on the contrary, can attract new investors to the cryptocurrency market. Now people are scared off by the risks associated with the acquisition of cryptocurrencies.

In 2019, scammers had stolen various cryptocurrencies worth $ 4.4 billion ($ 1.7 billion in 2018). The regulation will significantly reduce the number of such cases and increase people's confidence. On the other hand, like China, some countries are already on their way to creating their digital currency. However, unlike bitcoin and others, the "digital yuan" will have centralized regulation.

Meanwhile, in contrast to 2017, it is of interest when the rise in bitcoin's value was accompanied by an increase in the number of users registered on "exchangers" (sites for exchanging cryptocurrency for real money), this time situation is precisely the opposite. Bitcoin is becoming more expensive, but there is no surge in those wishing to register on exchangers, which may indicate that people who purchase bitcoins and other cryptocurrencies are no longer in a hurry to sell them. This means that bitcoin is more and more viewed in terms of medium and long-term investments, which only strengthens the position of cryptocurrencies in the financial markets.

Azad Hasanli, financial expert