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The market value of bitcoin has been over US$200 billion, accounting for nearly 70% of the cryptocurrency market. According to cryptographer and trader Rhythm, the market value of bitcoin has surpassed the legal currencies in South Korea, Brazil, Canada, Mexico, and Australia to become the 11th largest currency in the world.
From its birth in January 2009 to the 11th largest currency in the world now, bitcoin has been developing for less than 11 years.
Since July 30, bitcoin has started a new round of rising and the price has climbed with strong momentum in 7 consecutive days. Being different from the past, the rise of bitcoin did not drive other mainstream currencies to rise and the cryptocurrency market showed a significant situation of unilateral growth.
Factors driving bitcoin to become the 11th largest currency in the world
In the future, which currencies can bitcoin surpass to stand in a higher position?
85% has been mined, less bitcoin supply will continue to push up the price
Statistics show that more than 17.85 million bitcoins have been mined, accounting for 85% of the total reserve. The remaining 3 million bitcoins are expected to be mined within 120 years.
As time goes by, it will be more and more difficult to mine bitcoin and its return on profits will also be greatly reduced. Although in theory, bitcoin will not be exhausted within about 120 years.
It is expected that in May 2020, the bitcoin mining award will be halved. The reward per block will be reduced to 6.25 bitcoins. As the “halving effect” continues, it is expected that by 2032, the reward per block will be reduced to less than one bitcoin. By 2140, the reward will be infinitely close to zero. Bitcoin will be in an abnormal deflationary state. All these factors will undoubtedly push up the price and the overall market values.
Loose monetary policy has a positive impact on bitcoin prices
Another factor is that in the context of economic activity and the slowdown of inflation, central banks worldwide are racing to cut interest rates.
In the past six months, more than a dozen economies such as India, Australia, South Korea, Malaysia, Russia, Turkey, and South Africa have taken measures to cut interest rates once or several times. Recently, the FED announced to lower its benchmark interest rate by 25 basis points to a target range of 2% to 2.25%, which became the first interest rate cut within the past decade.
After the FED announced its first interest rate cut within the past decade, the bitcoin price broke through US$10,000 and rose more than 4% within one day. The industry generally believed that the FED rate cut has pushed up the bitcoin price to some extent.
Tom Lee, the co-founder of Fundstrat Global Advisors, once talked about the effect of the FED interest rate cut on bitcoin. He indicated that the interest rate cut was positive for bitcoin. “Bitcoin is increasingly becoming a macro hedging tool for investors to guard against possible risks. Cutting interest rates has increased liquidity, which is driving capital to flow into all the risk and hedge assets. It’s helpful for bitcoin.”
It means that loose monetary policy can create more liquidity and bring more capital into the bitcoin market, which becomes one of the driving forces to push up bitcoin prices.
The global economic downturn has pushed up bitcoin prices
According to statistics from cryptocurrency analysis company, Delphi Digital, the risk of the US economic recession is rising rapidly. “The 10-year US Treasury yield curve has been reversed, which is just the precursor of economic recession.”
In addition, the central banks around the world relaxed monetary policies, which also proved the depressed global economy.
Although there are no direct historical data about the performance of bitcoin price during the recession, Delphi Digital believes that gold should be a good frame of reference. When the actual rate of return decreases, the gold tends to rise. It’s the same with bitcoin now.
“The rising risk of currency depreciation, especially the risk of depreciation of the reserve currency, is becoming a longer-term catalyst to push up the prices of bitcoin and gold.”
Risk Aversion Pushes Up Bitcoin Prices
Due to pessimistic expectations for the future economy, more and more investors have chosen bitcoin as safe-haven assets
According to the non-bank financial industry weekly report issued by Everbright Securities in June, the bitcoin futures and open trade volume at CME have broken records since May, due to the core reason of rising risk aversion in the world.
In an interview by the US financial media CNBC in July, two cryptocurrency experts also expressed similar viewpoints. Chamath Palihapitiya, a bitcoin supporter, and Silicon Valley venture capitalist pointed out that bitcoin should be the best tool to avoid traditional financial inflation risks.
Delphi Digital also pointed out in the report that as the mainstream investment market shrank, some sensitive investors were considering access to the bitcoin market to hedge against the uncertainties in the mainstream market.
“The advantage of bitcoin has attracted more and more investors, especially the growth space of FAANG (note: FAANG is the abbreviation of five major tycoons in the US, Facebook, Apple, Amazon, Netflix, and Google) is getting smaller and smaller. In such a background, bitcoin has been considered one of the most promising assets in the world.”