The price of Bitcoin (BTCUSD) advanced beyond the $50,000 milestone on Aug. 22, 2021—the first time it has traded above this level since mid-May. Among the factors that may be fueling bullish sentiment about Bitcoin and other cryptocurrencies such as Ethereum (ETHUSD) and Dogecoin (DOGEUSD) are supportive remarks by Elon Musk, CEO of advanced electric carmaker Tesla, Inc. (TSLA), and expectations that the U.S. Federal Reserve may continue to strike a dovish stance that will keep interest rates low, thus reducing the comparative appeal of other financial assets. Musk has indicated that he holds Bitcoin, Ethereum, and Dogecoin.
Other forces that may be driving the surge in the price of Bitcoin are a rebound in mining and processing activity, rising mainstream acceptance, growing beliefs that it can be at the hub of a new global financial infrastructure, increased utilization as a hedge against inflation, and overall bullish sentiment in the markets.
- The price of Bitcoin broke above $50,000 on Aug. 22, 2021.
- It had reached this level in mid-May before slumping.
- Likely factors behind the recent surge include low interest rates, rising inflation, and growing mainstream acceptance of digital currencies.
Mining and Processing Rebound
Indications are that the mining and processing of Bitcoin has rebounded from a low in July, when the Chinese government announced a crackdown. This is significant since roughly 65% of Bitcoin mining takes place in China.
Rising Mainstream Acceptance
Another factor that may be driving the rebound in the prices of Bitcoin and other cryptocurrencies is growing mainstream acceptance among banks and brokerage firms. Moreover, trading venues for digital currencies, such as Coinbase Global, Inc. (COIN), are being created to meet the growing demand.
Furthermore, leading companies outside the financial sector—most notably Amazon.com, Inc. (AMZN) and Walmart Inc. (WMT)—have recently posted job advertisements related to the development of strategies concerning digital currencies. Online marketplace PayPal Holdings, Inc. (PYPL) has announced that it is moving toward allowing Bitcoin and other digital currencies as a form of payment. Indeed, early in 2021, Elon Musk suggested that Tesla might take Bitcoin in payment for its vehicles, but he later backtracked.
‘I Don’t Think There Is Anything More Important’
According to Jack Dorsey, co-founder and CEO of social network site Twitter, Inc. (TWTR) and payments processor Square, Inc. (SQ), “Bitcoin changes absolutely everything.” He added, “I don’t think there is anything more important in my lifetime to work on.”
Dorsey believes that Bitcoin can underpin a new financial infrastructure that is more inclusive and supportive for underserved communities around the world. He also feels that Bitcoin can protect against currency devaluation and expedite transfers of funds across borders. “I don’t think there is anything more enabling for people around the world,” Dorsey said.
Possible Inflation Hedge
Another possible cause for the rebound in the price of Bitcoin is that it may be seen as a hedge against rising inflation. If so, this would be an indication that digital currencies are being utilized by a growing segment of the investing public as a substitute for gold and other precious metals, which are more traditional inflation hedges.
Swings in Market Sentiment
David Donabedian, chief investment officer (CIO) of CIBC Private Wealth Management, says that it is a “mistake” to attribute swings in the price of Bitcoin to any fundamental developments or factors. “What’s driving it is momentum and money flows, and a little bit of overall risk-on, risk-off sentiment in markets,” he told Fortune, adding, “there is no credible way to value it.”