The price of one bitcoin rose above $20,000 on Wednesday. The new all-time record caps a year of gains for the world’s most valuable cryptocurrency. The value of all bitcoin in circulation is now around $380 billion.
No single event seems to have pushed bitcoin’s value over the $20,000 mark. But more and more companies, institutions and wealthy individuals have started to see it as a worthwhile long-term investment, driving demand upward.
A software company called MicroStrategy has poured hundreds of millions of dollars into bitcoin in recent months. It recently announced it was raising another $400 million to buy bitcoin.
Square announced a $50 million bitcoin investment in October. The same month, PayPal announced support for bitcoin, providing an on-ramp for retail investors.
Boosters see bitcoin as digital gold
We’re now in the fourth major boom bitcoin has experienced since it was created in 2009. Bitcoin reached its previous peak around $19,500 in December 2017 before crashing to a low around $3,200 a year later.
In bitcoin’s early years, bitcoin boosters positioned it as a new payment technology, emphasizing its ability to clear transactions in minutes with near-zero transaction fees. But that vision didn’t pan out. While it’s fairly easy for a merchant to accept bitcoins, acquiring bitcoins for routine transactions continued to be a hassle. Moreover, the capacity of the bitcoin network failed to keep up with rising demand, leading to skyrocketing fees and long wait times at the tail end of the last bitcoin boom in 2017.
As a result, many people today see bitcoin as primarily an investment asset. People don’t buy bitcoins because they want to make payments with it. They buy it in the hopes that its value will continue rising.
That might seem paradoxical. Most assets—stocks, bonds, real estate—are valued based on the income they generate. But not all assets are like that. Gold doesn’t generate any dividends, yet the world’s gold stocks are collectively worth trillions of dollars. Bitcoin investors are betting the same will be true of cryptocurrency in the long run.
And this is increasingly looking like a winner-take-all market. Bitcoin’s price is now above its previous high from 2017. But other leading cryptocurrencies have not regained their previous highs. The number two cryptocurrency, Ethereum’s ether, is worth around $600, less than half the peak reached in early 2018. Bitcoin Cash, a bitcoin spinoff designed to enable higher transaction volumes, has lost 90 percent of its value since its late 2017 peak. Litecoin is down about 70 percent over three years.
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