2020 was a great year for Bitcoin. The currency had a return of approximately 307%, reaching new all-time highs. The price appreciation was primarily driven by institutional interest among financial service providers and asset managers. Governmental actors are beginning to put forth significant regulation regarding digital assets. Monetary policy around the also world bolstered the use case for Bitcoin amid fears of fiat currency depreciation. Bitcoin’s block subsidy was halved in May.
- Bitcoin has experienced consistent price appreciation following the brief crash that occurred at the beginning of the COVID-19 crisis. Unlike the bull market in late 2017, this trend is being driven primarily by institutional and accredited investors. MicroStrategy made waves with a large bitcoin purchase in Q3, pushing their current holdings to a value around $3 billion. Square followed a similar strategy, converting a large portion of their cash reserves into Bitcoin. MassMutual, Stone Ridge, and Ruffer Investment have made direct investments into bitcoin. PayPal gave hundreds of millions of retail investors the ability to trade and hold bitcoin, with Venmo set to follow suit in the near future. Visa has also started to offer significant support for Bitcoin. BlackRock and Guggenheim have yet to make a direct bitcoin investment, but both have laid the groundwork to make an allocation in the near-future. Notable individual investors Paul Tudor Jones and Stan Druckenmiller have made personal investments and voiced strong public support for the currency. A common theme among these Bitcoin advocates is the asymmetric risk-adjusted returns of bitcoin and the need to hedge against fiat currencies.
- Macroeconomic events and government actions around the world have served as a catalyst for Bitcoin. COVID-19 has forced governments to supply significant financial relief to their economies. The US government’s budget deficit for 2020 more than doubled the record set during the 2008 financial crisis, with a similarly large deficit expected in 2021. Quantitative easing measures also included reducing interest rates to as low as 0% in the first half of 2020. Simultaneously, investors are flocking to safe assets, pushing yields on government debt instruments lower and in many cases negative. The increased demand and use of bitcoin has accelerated regulatory reactions in many countries, including the United States. Wyoming has enacted regulations to facilitate the operations of Special Purpose Depository Institutions, allowing for digital-asset banking. More broadly, the OCC has authorized the custody of cryptocurrencies for federally-chartered banks.
- Bitcoin experienced a return of 307% in 2020, setting new all-time high records well above those set in 2017. The currency broke $30,000 early in the new year, trading around $31,400 at the time of writing. The second half of 2020 saw a decoupling of Bitcoin’s prior correlations to gold and equities. Bitcoin’s market capitalization is now around $580 billion, roughly 5.8% of gold’s market capitalization. This number is based on the total mined supply of 18.6 million bitcoin, including roughly 450,000 bitcoin mined in 2020. However, a large portion of this supply is almost certainly lost irreversibly. The block subsidy was halved on May 11th, decreasing from 12.5 bitcoin to 6.25 bitcoin. Bitcoin’s supply will increase by roughly 1.8% in 2021. There was roughly 56 million in onchain bitcoin transaction volume during 2020.
2020 was a great year for Bitcoin, marked by significant price appreciation and growing acceptance and usage among institutional investors. The US government continues to push forward with regulation of the currency, in a process that has been primarily positive for bitcoin markets. Consistent institutional demand and the newly halved block subsidy have Bitcoin poised to perform well in 2021.