• Bitcoin’s hold on the market is robust, owing to its alternative status with gold.
  • Negative speculation has only served to spike the price of cryptocurrencies.
  • Banks are yet to consider Bitcoin as an alternative currency.

In the last five years, Bitcoin (BTC) cryptocurrency has risen by more than 134,000%, while Ethereum is up by 9,000%. On the other hand, Tether has declined by 12.87% in the same period owing to market pressure in favor of the two dominant digital coins.

Bitcoin, Ethereum, Tether prices chart

As of January 10, 2021, Bitcoin was trading at $40,955.47 against Ethereum’s $1,322.34. After Bitcoin’s spike, the cryptocurrency market value has been pushed beyond the $1 trillion mark. Factors that have caused Bitcoin to make this leap are attributed to investor preference and exponential demand growth.

Investor Preference

Most investors are waking up to the fact that they underrated Bitcoin. The massive bull rally may be the tip of the crypto explosion. For the past two years, investors have been looking for a decentralized alternative asset, unhinged from any central bank. The US Federal Bank’s recent actions to keep low-interest rates have encouraged investors to seek other hedges. The dollar is on a losing streak, with investors less confident of its return to prime.

Moving into the new age, investors prefer a currency that is not tied down to a monetary or fiscal policy action plan.

To combat the coronavirus pandemic, the US Federal Reserve approved a zero-interest rate plan that took down investors’ financial benefits. Secondly, it allowed for close to $10 trillion as a stimulus in 2020 alone. Reports are rife that the new Biden administration is preparing a multi-trillion relief program to provide unemployment aid. Also, individual checks to the tune of $2,000 are in play in the first quarter of 2021.

At the moment, Bitcoin is taking gold’s role as a haven against economic instabilities. However, cryptocurrencies are very volatile, and the bubble may burst at any moment. However, it is this same speculation that keeps driving Bitcoin’s prices higher. 

Further, other cryptocurrencies are struggling since investors want to adopt one cryptocurrency first as the perfect replacement for gold. In the same breath, Ethereum’s price has gained 5.87% in the last three years since 2018, and its market cap stands at $148 billion. Investors may be considering it as a replacement for Bitcoin in case the former fails to hold.

Banks and cryptocurrencies

There are reports that some banks are disallowing their customers to cash in on gains made from Bitcoin transactions. The UK-based multinational bank HSBC has refused to process payments in cryptocurrencies. 

While most banks do not allow customers to withdraw funds from their digital wallets into their bank accounts, some have declined their customers’ credit card utilization to either buy or sell cryptocurrencies. For instance, Bitcoin was created after the financial crisis of 2009, and since then, it has been used as a hedge against economic downfall.

With this understanding in mind, blockchain technology allows person-to-person transactions where customers do not have to conduct exchanges using bank accounts. Many investors feel that these banking hurdles may affect rising Bitcoin prices. To put the matter into perspective, the cryptocurrency market will be free once banks allow a seamless transaction. Market penetration may present a hurdle to investors as they wait and see on implementation of the regulation.

Takeaway

The cryptocurrency market is on a massive bull run. Leading the pack is Bitcoin that is rushing to substitute gold as a wealth haven. Other digital coins take time as investors strive to understand how to deal with the mainstream challenges with banks and government regulations.