As of December 16, Bitcoin has increased by about 195% year-to-date, topping $23,000, but what is driving this meteoric rise? The reasons for its appreciation vary, but Bitcoin has grown from what was once considered a scam by many into something that has matured into a viable investment made by famous billionaire investors, large institutions, and retail investors alike. Why are these investors so bullish on Bitcoin even after it has surpassed all-time highs?
Inflation and the lowering purchasing power amidst massive stimulus spending is driving people to store-of-value assets, including Bitcoin.
Bitcoin’s mining reward halving mechanism further proves its scarcity and merit as a store-of-value asset.
Institutional adoption as both an investment and as a service they can provide shows strong confidence in the future of Bitcoin and cryptocurrency.
The infrastructure built around cryptocurrency and Bitcoin has shown immense maturity over recent years making it easier and far safer to invest than ever before.
Inflation and the Lowering Purchasing Power of the Dollar
Since the gold standard was removed in 1971 by Richard Nixon the amount of circulating dollars has steadily increased. Between the year 1975 and just before the coronavirus hit, the total money supply has increased from $273.4 billion to over $4 trillion as of March 9, 2020. Since that date, the total money supply has gone from $4 trillion to over $6.5 trillion as of November 30, 2020, largely due to coronavirus related stimulus bills.
Congress is currently in talks to pass another stimulus bill of nearly $1 trillion, aimed to help those suffering from the coronavirus. Should this new stimulus bill be passed it would mean that since the onset of coronavirus, around 50% of the world’s total supply of US dollars will have been printed in 2020.
While there are certainly people suffering from a lack of jobs and businesses shutting down, the increase in money supply has significant long-term implications for the purchasing power of the dollar.