Prior to the classification of the coronavirus as a global pandemic, the price of Bitcoin hovered around the $8,000 mark. The Covid-19 crisis served as a catalyst for sustained price growth, however, as Bitcoin’s value soared five-fold in the next 10 months before achieving a breakout above $40,000 in January.
While Bitcoin’s price may have dipped slightly in February after Bill Gates warned against investing in the cryptocurrency, it has since rebounded once again and peaked above $50,000 in the first week of March.
But as Bitcoin soared during times of economic austerity, there are fears that it may crash as worldwide growth returns in 2021. But is this the case, and should investors seek out alternative assets as the economy continues to recover?
Will the Economic Recovery Impact on Bitcoin?
For now, the coronavirus remains an omni-present threat, while the recent rollout of Joe Biden’s $1.9 trillion stimulus plans suggests that Bitcoin could go further in the near-term.
However, there’s no doubt that the global economy is poised to achieve marked growth this year, with the IMF increasingly buoyant and now proposing expansion of 5.5% throughout 2021 (up by 0.3% on the previous years’ forecast).
This is being underpinned by global vaccination programs, which are continuing to increase economic sentiment while hinting at the gradual removal lockdown measures and economic restrictions worldwide.
The forex broker Tickmill is predicting that inflation expectations will rise as vaccinations continue, while an end to stimulus measures will contribute to increased activity and spending (particularly during the second half of the year).
This view is being supported by an uptick in US data, which has come surprisingly early from the perspective of economists and even caused US treasuries to explode recently.
So, while Bitcoin may continue to ride on the crest of a wave in the next few months, there’s no doubt that its growth could stall as economic growth returns through 2021.
Why Did Bitcoin Grow in 2020?
Throughout 2020, the investment markets took a substantial hit as the coronavirus raged across the globe, with currencies particularly adversely affected as individual nations sought to introduce quantitative easing measures.
For example, Canadian Prime Minister Justin Trudeau announced stimulus measures amounting to $100 billion, with this money to be spent over three years in order to bolster the wider economy.
As fiat currencies depreciated in value, however, Bitcoin continued to soar as an alternative investment asset, reinforcing the cryptocurrency’s reputation as being like ‘digital gold’.
This is an interesting observation, with Bitcoin having largely mirrored the performance of gold through 2020, with the token buoyed by a similarly finite supply and its capacity to offer a secure store of wealth during challenging times.
As a result, Bitcoin emerged as a viable safe haven last year, and one that remained immune to macroeconomic factors and governmental stimulus measures.
These factors undoubtedly combined to create something of a perfect storm for investors, while those who choose to invest in Bitcoin last March will have seen a significant appreciation in the value of their asset during the subsequent months.
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