While 2020 was a rough year in many regards, performance of some of the most well known cryptocurrencies went through the roof. A number of large companies have publicly displayed support for crypto, and retail investors have been similarly enthusiastic about particular crypto coins – bitcoin began the year at a low point but has since soared past previous all time highs, and other cryptocurrencies such as Ethereum aren’t too far behind.
With this being said, determining whether crypto is a safe investment looking forward will come down to a number of factors – this means developing a further understanding of the driving factors behind 2020’s crypto performance, understanding the intrinsic value that crypto provides in the first place, and knowing how Bitcoin and top altcoins are providing unique value within the tech and finance sectors.
The Institutional Investors and Companies Getting on Board
In 2020, there were a number of significant institutional investors and large scale companies voicing support and getting amongst the crypto space. Whether this was in the form of crypto exchanges, investment or otherwise, these big players are giving retail investors confidence in the future of crypto.
One of the more significant crypto headlines of 2020 was in regard to PayPal – in joining current exchanges such as Independent Reserve, they have announced that they are now allowing their almost 300 million customers to buy, hold and sell cryptocurrencies like Bitcoin.
As a result, they have given confidence to crypto believers, spread positive awareness to retail and institutional investors alike, and have given millions the ability to trade crypto. Following PayPal’s announcement, they have been consistently purchasing newly mined Bitcoin, and the cryptocurrency has seen a massive explosion in value.
In addition to this support, many significant institutional investors are beginning to voice their support for crypto and are making Bitcoin and altcoins a part of their portfolios. With a growing view that crypto is seen as a hedge against inflation (similarly to gold), they are contributing massively to the crypto space, utilising their wealth and driving up crypto prices.
With more institutional support than ever, these involvements are clear votes of confidence in crypto for the long term, and many believe that the recent developments by these companies are only the beginning of a long future for crypto.
Why Crypto is Increasingly Seen as a Viable Investment Opportunity
Just a few years ago, the vast majority of people interested in the financial sector would dismiss crypto as a fad. Today, Bitcoin has come close to doubling its previous all time high of 2017, and factors like institutional support and fiat currency performance are only fuelling investor confidence. While people initially saw value in cryptocurrency as a spendable form of currency, today’s reasons for investment are largely different.
A significant reason as to why many are seeing value in cryptocurrencies such as Bitcoin is that they are seen as a form of digital gold – a scarce digital asset, with a limited supply.
Particularly as governments around the world have flooded markets with money in order to increase economic activity in the short term, threats of inflation are high as increasing money supply continues to erode its value. As a result, Bitcoin in particular has become a hedge against this inflation (and against a way to diversify investment and reduce risk of poor returns on other asset types).
On top of this fundamental Bitcoin characteristic, it is blockchain based – this means that it is decentralised, functions over a peer-to-peer network, and the record of transaction history cannot be changed.
How Altcoins are Offering Unique Value
In addition to Bitcoin (which is by far the largest cryptocurrency by market cap), there are a number of altcoins that are doing particularly well, thanks to their unique characteristics and the way in which they provide value to the tech and finance industries, as well as the world more broadly.
More specifically, a particularly well performing cryptocurrency that is unique and appears to be future proofed is Ethereum. This cryptocurrency, after slow performance over previous years, is beginning to pick up in value, and for a few reasons.
Firstly, it offers value by facilitating software processing and development of decentralised apps, or Dapps – a significantly more practical use than that of Bitcoin. This real world application also allows for the use of what are called smart contracts, which are automated contracts that reduce the need for third parties.
Secondly, whilst Ethereum is currently limited by infrastructure in a number of ways, the development of Ethereum 2.0 is underway, which will reduce transaction times, eliminate significant bottlenecks, and reduce transaction costs. Consequently, this overwhelming improvement on how Ethereum operates will ultimately increase its operational efficiency and the value it provides, and many investors are jumping on board as a result.
Alex is fascinated with “understanding” people. It’s actually what drives everything he does. He believes in a thoughtful exploration of how you shape your thoughts, experience of the world.