The world’s leading cryptocurrency, Bitcoin, experienced a remarkable rally on Monday, increasing by around 12% to reach a high of $35,280 on Binance exchange. The sudden surge has caught the attention of investors worldwide and has raised many questions about the potential factors behind the recent rally. In this article, we will delve into some of the most probable factors driving this phenomenon.
Supply and Demand
Bitcoin has a fixed supply of 21 million coins, and as the adoption rate of Bitcoin as a store of value, medium of exchange, and investment continues to rise, the demand for it also increases. This results in upward pressure on the price, particularly when there is a scarcity of sellers in the market. Glassnode, a crypto analytics firm, revealed that the number of Bitcoin held on exchanges had hit a two-year low, implying that investors are holding on to their assets instead of selling them.
Institutional Adoption
Bitcoin has recently gained significant recognition and acceptance from institutional investors, corporations, and even governments worldwide. For instance, MicroStrategy, a publicly traded software firm, has acquired more than $1.1 billion worth of Bitcoin as part of its treasury reserve strategy. Moreover, PayPal, one of the world's leading online payment platforms, now allows its users to purchase, hold and sell Bitcoin, and other cryptocurrencies on its platform. Finally, El Salvador, a Central American country, recently made history by adopting Bitcoin as a legal tender, allowing its citizens to use the cryptocurrency for day-to-day transactions.
Technical Factors
Technical factors can significantly affect the price movements of Bitcoin. One such technical factor is the halving event that happens every four years, which cuts the amount of new Bitcoin mined by miners by half. This creates a scarcity effect, making Bitcoin more valuable over time. The most recent halving event happened in May 2020, and Bitcoin historically experiences a significant price increase in the year following each halving event. Additionally, the network effect, meaning the value of a network increases as more users join it, also enhances Bitcoin’s value proposition as more developers and innovators continue to join its network.
Final Thoughts
It is important to note that Bitcoin is an extremely volatile asset and can be influenced by various factors, including market sentiment, regulatory developments, media attention, and geopolitical events. As a result, investors are urged to conduct thorough research and weigh the risks before investing in the cryptocurrency. Despite its volatile nature, Bitcoin has shown that it is possible to experience a massive price surge overnight, catching investors' attention and curiosity worldwide.