2020 is likely to go down in history and financial textbooks as one of the most interesting years in our recent history. From a finance perspective, the year saw some of the biggest drop-offs in economical outputs, which can only be rivalled by the Great Depression, as well as the largest stint of money printing for the federal reserve in its history thus far. However, it was not just bad news all around. 2020 also saw the first real indications that banks, insurance firms, money managers, and insurance firms had begun to embrace the rapidly growing digital asset and cryptocurrency markets.
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Bitcoin’s Humble Beginnings
The origin of Bitcoin is, in itself, a great and interesting mystery for many Bitcoin enthusiasts. A brilliant open-source programmer, called Satoshi Nakamoto, designed Bitcoin over a decade ago. The digital currency was built on top of a cryptography-based network, which we call blockchain today, that made peer-to-peer electronic payments possible. This payment system was unique in that it does not belong to any person, government, or company. This makes it one of the safest payment systems in the world today. At the beginning of 2020, bitcoin was still very much deemed a fringe investment and was met with disdain from billionaire investors and governments alike. However, by the end of 2020, the value of Bitcoin had almost quadrupled where it reached a record-breaking high of more than $28,000 per coin. Some Bitcoin enthusiasts viewed the unprecedented success as validation of the unique technology that they believe will change world finance forever.
Bitcoin as a Hedge
Many things changed the trajectory of Bitcoin’s value but the most prevalent aspect has been bitcoin’s title of a hedging asset. Bitcoin experienced significant growth last year due to the potential debasement of currency that would be the result of federal banks printing millions of dollars to aid global economies and expenses related to the pandemic. This thesis is based on the hard-coded limits of bitcoin supply that are programmed into the blockchain network and will not allow more than 21 million bitcoin to ever be minted. The Federal Reserve, and other banks, printed trillions of dollars last year which cemented bitcoin’s position in headlines as a hedge against decreasing currencies. The end of last year saw an increasing number of institutional and personal investors making use of platforms, such as try bitqs, to invest and trade.
Bitcoin Serves as a Safe Haven Asset
While bitcoin was not in the headlines at the beginning of the year, it did not take long for the cryptocurrency to receive the jolt it needed. In the first week of January, growing tensions between Iran and the US fuelled speculations of geopolitical turmoil. Bitcoin increased significantly in value during this time as it is a safe-heave asset, which is similar to gold, in that it retains its value in times of economic and geopolitical instability and turmoil. As a result of the contentious democratic election that took place in the US last year, the price increased further as former president, Donald Trump, planned to battle his way back to the White House.