The 3rd and 4th quarters of 2020 and the start of 2021 has proven itself to be quite a ride for Bitcoin. Shattering a 5-year bear run, Bitcoin valuations stormed to an all-time high of $34,800 - stunning punters everywhere.
This sudden turn of events has sent investors scrambling to snap up Bitcoins and a selection of other cryptocurrencies in an attempt to get aboard the crypto train. Despite what the naysayers have said in the past, there is clearly a sustainable market for cryptocurrencies in today’s world.
As cryptocurrencies are entirely unregulated, this gives them an edge over traditional investments that can be sideswiped by government regulations and policy. Now more than ever with geopolitical tensions and government instability, investors are hungry for asset classes that insulate them from these factors.
Now with prices skyrocketing, we take a look at why Bitcoin and other cryptocurrencies are a solid investment for the year 2021.
1. Validation by institutional investors
Bitcoin started out as a medium of exchange for individuals living on the fringes of society. The pseudo-anonymity offered by the currency made it popular for illicit transactions performed over the internet.
During those days, Bitcoin was treated as a niche currency with no tangible value. Fast forward more than a decade and Bitcoin along with other cryptocurrencies are traded as investment-grade commodities.
Because of this, institutional investors have begun taking significant positions in the cryptocurrency market and legitimizing it as a viable investment.
While some may argue that Bitcoin lacks a tangible presence, its use as a means of transferring funds all over the world makes this a moot point. As the world becomes increasingly connected with cashless transactions and e-payments taking over, we may soon find ourselves going entirely digital.
Thus making the case for digital assets with no actual presence in the real world.
2. Liquid crypto assets
Thanks to the connectivity offered by the internet and developments in fintech, investing has become increasingly democratized. Nowadays anyone with an online bank account and internet access will find it exceedingly easy to get investing.
Because of all this, cryptocurrencies have become some of the most liquid assets available on the market. Platforms such as eToro, Coinbase, and Paypal provide investors with the opportunity to trade cryptos with other assets with ease.
This flexibility allows investors to quickly leverage on any potential market developments quickly and decisively. Bitcoin’s high liquidity allows it to be an ideal asset for both short and long-term investors looking.
For short-term investors, the combination of liquidity and volatility can bring about excellent returns on investment. Meanwhile, a long-term investor will appreciate the ease in which Bitcoin can be converted into other assets.
3. Alternative safe-haven investments
Thanks to its use as a store of value, gold has often been regarded as a solid safe-haven asset by investors. During times of significant market uncertainty, prices of gold have risen as investors flock to safeguard the value of their assets.
Due to the unique nature of Bitcoin, investors have looked to the cryptocurrency as a form of digital gold with the potential to rival gold as a safe haven asset.
With governments injecting cash into their economies at an unprecedented rate, it is only fair to expect inflation to rise accordingly. As a surplus of cash flows into the global market, the fiat currencies are likely to become devalued as a result of government policy.
Because of this, investors have turned to converting their cash holdings into cryptocurrencies - with Bitcoin being particularly popular. The limited supply of cryptocurrencies in the market coupled with the lack of deregulated nature of the currency means that it is essentially inflation proof.
Hence making the case for the sudden rise in popularity of the cryptocurrency come the end of 2020 and the start of 2021.
The market for cryptocurrencies will only grow as we progress further into 2021. Changing mindsets and an ever-evolving economy means that 2021 is set to be an exciting year for cryptos.
About the author:
Benjamin Lee is a self-employed professional copywriter with nearly a decade of experience writing. Graduated from Monash University with a degree in Accounting and Banking and Finance.
Specialist in producing top-quality articles on cryptocurrency and finance. His articles have been featured in a variety of business and finance publications.