It took bitcoin (BTC) 10 years in existence to reach the $20,000 mark, on Dec. 15. Then it took just 15 days to reach $29,000. It took the Dow Jones almost three years to make the same move.
Bitcoin started the year at $7,200. It’s ending the year close to $30,000, up 296%. (For comparison, the Nasdaq is up 43% in 2020, the S&P 500 up 16%, the Dow up 7%.)
The 2020 bitcoin bonanza can be chalked up to a convergence of many positive factors, as well as a convergence of narratives.
In the past, a common criticism of bitcoin from skeptics was that it isn’t useful as a real currency—you can’t spend it in most places. In 2020, investors decided they don’t care about that, and don’t want to spend their bitcoin anyway. Institutional firms flooded in, viewing cryptocurrencies as a legitimate asset to hold in their portfolio.
At the very least, the consensus now appears to be: Bitcoin isn’t going away. It has existed for 10 years and will continue to exist.
“A failure by the Grayscale Bitcoin Trust to receive additional inflows over the coming weeks,” JPM strategists wrote, “would cast doubt to the idea that institutional investors such as family offices have embarked on a trend of embracing bitcoin as digital gold.” As we now see, GBTC did not fail to receive additional inflows in December.
In November, billionaire investor Stan Druckenmiller said he owns some bitcoin, telling CNBC he owns a lot more gold than bitcoin, but “if the gold bet works, the bitcoin bet will probably work better, because it’s thinner, more illiquid and has a lot more beta to it.” Bill Miller, the veteran investor and former CIO of Legg Mason, has added his name to the chorus, saying he expects all the big banks to hold cryptocurrency soon and that he has 30% of his own hedge fund portfolio in bitcoin.
Even Ray Dalio of Bridgewater, who had said earlier this year that he sees major problems with cryptocurrencies, including the potential for governments to “outlaw” them, said in a Reddit AMA this month that bitcoin “could serve as a diversifier to gold” and that investors ought to “have some of these type of assets.”
Of course, many prominent bears remain bears. The economist Nouriel Roubini, who has the nickname “Dr. Doom,” reiterated this month on Yahoo Finance that he believes bitcoin is “not a currency… not a stable store of value… not even an asset,” and predicted that the “hyperbolic bubble is going to go bust.”
PayPal, Square, Visa, JPMorgan, Fidelity & more
PayPal (PYPL) and Square (SQ) have been credited with intensifying the 2020 surge.
On Oct. 21, PayPal announced it will soon allow bitcoin buying inside its PayPal and Venmo digital wallets (as well as paying with bitcoin, though most people are not likely to want to spend their crypto as the price rises). The news sent PayPal shares soaring along with the bitcoin price, hailed as a major milestone: a consumer-facing payments company signaling its faith in bitcoin.
Visa (V), over the past year, has approved a slew of Visa-branded bitcoin rewards credit and debit cards, and will add support for Circle’s USDC stablecoin (a cryptocurrency pegged to the value of the U.S. dollar) to its customer network. Visa tells Yahoo Finance it is “actively working with over 25 digital currency companies on a variety of bitcoin-related products and services, cards being just one area.”
All of these examples represent an obvious shift in sentiment from just one year ago, which is why many in the crypto space insist this time is different than the 2017 price run.
The COVID-19 pandemic, and government reaction to it, handed bitcoin its dream scenario. When the Fed has to step in, crypto flag-wavers point to digital gold, free from government interference and quantitative easing. (Bitcoin’s supply will be capped at 21 million coins, with about 18.5 million coins created so far; mining creates new coins on the road to 21 million, but the reward for mining gets halved every four years as a means to slow creation.)
“There’s so many uncertainties in this pandemic, but one thing that seems almost assured is when you print trillions of dollars more paper money, it’s going to drive up bitcoin and other cyptocurrencies,” Dan Morehead, CEO of crypto investment firm Pantera Capital, said in August. “Gold’s going to go up, bitcoin’s going to go up. It is a hedge to paper currency being debased.”
In November, as the pandemic dragged on, more investors sought hedges, and as Chainlink cofounder Sergey Nazarov said, “That seeking of safety leads them to look at alternatives. The modern global financial system is not very well set up to help people combat inflation, whereas there are alternatives, such as bitcoin, that are. Impending inflation is something that is more and more on people’s minds, and inflation as a mechanism to devalue assets leads people to seek safety.”
The next question for crypto markets in 2021 will be what a President Biden administration means for crypto policy (maybe nothing), and whether bitcoin will in fact be a “safe” investment.
Daniel Roberts is an editor-at-large at Yahoo Finance and has covered bitcoin since 2011. Follow him on Twitter at @readDanwrite.