Bitcoin’s 12-year history has been filled with wild swings in both directions. Despite being born in 2009, the first purchase using Bitcoin came in 2010. Someone paid 10,000 BTC for 2 pizzas. If that amount seems laughable, it is a testament to how much Bitcoin has grown in the past decade. In April 2021, Bitcoin hit all-time high of over $63,000. How did the Bitcoin bull run get here, and will it last?
It’s important to remember that Bitcoin has never been stable. In 2013, Bitcoin reached $1,000 in value for the first time before collapsing to $300. It would take years for Bitcoin to recover. Throughout the mid-decade, Bitcoin grew relatively slowly as more establishments, banks, and fintech institutions opened their doors to Bitcoin use and investment. By 2017, Bitcoin was ready to see another meteoric rise. Its value jumped from under $1,000 to over $19,000 in one year, but again, it did not last. The US accused 2 cryptocurrencies of manipulating Bitcoin’s value, prompting a criminal investigation. Due to the tension in crypto’s regulatory environment, Bitcoin once again fell by 70% over the course of a year in 2018. Despite the setback, Bitcoin still outperformed even the best stocks on the market in 2019. Thus when the global economy slowed in 2020, risk-loving investors seeking high returns were likely to see Bitcoin as an attractive home for their money.
The fascination with cryptocurrency is not only driven by speculation. Fears of inflation surround the US dollar. More than 20% of all dollars in circulation only came into existence last year. By comparison, the supply of crypto coins is kept finite, limiting inflation risks. Further limiting supply is the Bitcoin Halving, which cuts the reward given to Bitcoin miners for processing transactions in half every 4 years. The most recent halving came in May 2020, during the pandemic lockdown. Investment in crypto could replace gold as a popular hedge against the US dollar.
Additionally, both governments and large companies have become more welcoming to cryptocurrency. The Office of the Comptroller of the Currency has given banks permission to hold crypto on behalf of customers. Tesla has recently invested in $1.5 billion worth of Bitcoin and announced they will accept it as payment for their products. Apple Pay will also take BitPay, a prepaid MasterCard funded by Bitcoin. Bitcoin can now be used in purchases anywhere MasterCard is allowed. Both investment and use as currency is expected to rise in the near future for Bitcoin.
As use of cryptocurrency rises, so too does the energy cost of mining and maintaining the system. In 2020, Bitcoin alone consumed 120 gigawatts per second. That is the equivalent of 156 million horses running simultaneously. Expect the figure to rise as Bitcoin grows more widespread in use. As with any investment, one should understand potential for gains, risk, and drawbacks before putting money in. Crypto has truly bewildering returns for its timely investors.