Bitcoin briefly traded above $39,000 for the first time since June 16 and is currently trading its sixth consecutive day in the green. Prices have continued to rally since July 21 with Sunday’s current price rise representing the largest single daily gain in over six weeks. The world’s oldest crypto is changing hands for around $38,250, having cooled slightly after hitting a monthly high of around $39,850. An unconfirmed single-source story in City A.M. has reported retail giant Amazon is looking to accept bitcoin payments by year’s end and is considering minting its own token by 2022. The retail giant is also seeking a Digital Currency and Blockchain Product Lead. In recent weeks Bitcoin’s price has seemed to continue marching higher. But what is driving this growth?
Bitcoin has seen extremely volatile peaks and troughs in its time. Its last peak was near $14,000 in June of 2019. At this point, Bitcoin experienced a hard resistance and it failed to push through this stage. If Bitcoin were to break through that resistance in June it would have likely triggered a bull market. Unfortunately, for Bitcoin bulls, it failed to do so and cascaded down to a low point of nearly $3,800. In October, Bitcoin retested this resistance point only to fall back down. On November 4th, Bitcoin pushed straight through $14,000 and continued higher. This is significant because Bitcoin’s next resistance point is its previous all-time high of $20,000. Below, we will talk about what exactly is happening right now for Bitcoin to grow so much in just a week.
Why is Bitcoin’s Price Rising?
With Bitcoin no longer having a theoretical resistance point until its previous all-time high of $20,000, many investors have become bullish that the cryptocurrency will be able to retest that price point or even push past it. This speculation has lead to an increase in Bitcoin’s value.
Inflation & Safety
Another reason for Bitcoin’s rise is the growing inflation of the U.S. dollar. While inflation is on average 2% each year, recent stimulus spending is poised to greatly increase the level of inflation and decrease the dollar’s purchasing power. With the recent stimulus packages, the United States has added around $2.4 trillion to the economy. This has many worrying about the inevitable decrease in the dollar’s purchasing power and the rise in inflation.
To hedge against this rising inflation, many have retreated from the dollar and have taken shelter in assets that historically have held value or have even appreciated in value. Typically, assets that people convert their dollars into to avoid inflation or volatile markets are ones that are scarce or are less volatile in general. These ‘safe-haven’ assets include things like precious metals, stocks in sectors that are generally less volatile, and more recently, Bitcoin.
Bitcoin as a Payment Method
Another reason for Bitcoin’s price appreciation is its growing adoption as a payment method. Recently, PayPal (PYPL) announced that it would soon allow its users and merchants to buy, sell, hold, and accept Bitcoin and other cryptocurrencies as a form of payment.This news pushed Bitcoin’s price higher immediately. PayPal has nearly 350 million users who will now have the ability to easily buy, store, and use Bitcoin. PayPal also has well over 20 million active merchants who can now accept the currency.
Aside from PayPal, this has further implications. PayPal also owns the widely popular payment app, Venmo. Venmo has more than 40 million active accounts, making the accessibility to Bitcoin and other cryptocurrencies even more significant. While PayPal and Venmo are newer to crypto, there are a host of other applications that allow its users to buy, sell, and hold. Popular competitors to PayPal and Venmo, Square (SQ) and CashApp, also accept cryptocurrencies making the audience to Bitcoin even wider.
Rising Cost of Production
Another reason for Bitcoin’s rise is that as the size of mining network grows, so does the mining difficulty — which, in turn, increases the marginal cost to produce a bitcoin. Bitcoin mining requires a great deal of energy, and this has a real cost that must be paid by miners in their local currency. Because Bitcoin’s protocol mandates one block be found, on average, every ten minutes, the more hashing power directed at mining does not increase the rate of new supply – it only increases the difficulty of mining. Research has shown the the price of a bitcoin has closely tracked its marginal cost of production.
Tesla Switching their Stance on Crypto
Last but not least, we have Elon Musk with more comments on the crypto market. His thoughts were what caused the huge Bitcoin drop earlier in the year. According to him, mining Bitcoin wasn’t environmentally friendly which is why Tesla stopped allowing Bitcoin for purchase of their cars. However, it seems that Elon Musk once again changes his opinion causing Bitcoin to grow.
The Tesla CEO says the electric-car maker will most likely restart accepting bitcoin as payments once it conducts due diligence on the amount of renewable energy used to mine the currency, according to Reuters. Musk made the comments at the B Word conference on Wednesday sending the price of bitcoin as high as 8%. It is another turnaround after Tesla said in May it would stop accepting bitcoin for car purchases.
“I wanted a little bit more due diligence to confirm that the percentage of renewable energy usage is most likely at or above 50%, and that there is a trend towards increasing that number, and if so Tesla would resume accepting bitcoin” Musk said.
Musk added that he personally owned Bitcoin, Ethereum and dogecoin, apart from bitcoin that Tesla and SpaceX owned.