Bitcoin Bounces Back: Bitcoin’s value rises over the Christmas period
January 31, 2021
2 min read
What's going on here?
Bitcoin’s price soars to a record high, as investors believe it could be used as a medium to store wealth.
What does this mean?
It appears Christmas came early for cryptocurrency fanatics as bitcoin’s value surpassed $20,000 on Wednesday 16 December. The currency has started the new year with a bang and has continued to grow in value, trading above $34,000 (£25,000) on the 3rd of January. The recent surge in bitcoin’s value is caused by an increasing number of investors backing the currency against other, more traditional, stores of wealth. Many investors have begun to call the crypto asset “digital gold”, with some speculating that it could replace gold as a means of storing wealth in the near future. However, analysts at JPMorgan are sceptical and believe that bitcoin’s volatility would have to be reduced before investors make this jump.
Indeed, bitcoin showcased its unpredictable nature by plummeting more than $5,000 in a few hours on the 4th of January. This level of volatility means that bitcoin is unlikely to replace fiat cash anytime soon. On the 22nd of May 2010, Lazlo Hanyecz found this out the hard way when he bought two pizzas for 10,000 bitcoin, the equivalent to $90m at today’s prices. However, with the support of big companies like Paypal (to see our article on that, click here) and big investors like Ray Dalio, the market may begin to stabilize.
What's the big picture effect?
Bitcoin’s surge in popularity is part of a much wider shift towards FinTech, which has been catalyzed by the pandemic. Covid-19 halted the use of fiat money as households reverted to online shopping and retailers refused cash payments to limit the spread of the virus. As such, businesses and consumers are now becoming more reliant on the use of digital payments. As more financial institutions like JPMorgan back the currency, its popularity is likely to grow. Therefore, law firms that are able to capitalize upon this trend will acquire a considerable amount of business. Many firms have realised this and have expanded their FinTech expertise to include cryptocurrency-related matters.
However, law firms and financial institutions are not the only organizations that will be interested in bitcoin’s rising value. Regulators may now want to introduce harsher regulations to stamp out bitcoin’s role in the solicitation of crime. Cryptocurrencies have frequently been used to facilitate the buying and selling of illicit drugs on the dark web. As a result, bitcoin’s rising popularity may be the perfect time for regulators to re-evaluate the law and introduce reforms.
On the whole, bitcoin’s surge in value and increase in popularity presents investors and law firms with exciting new opportunities to expand. However, bitcoin’s volatile nature ensures that it is unlikely to be used for its intended purpose as a valid medium of exchange. In fact, financial institutions’ current use of the currency is likely to hinder, rather than progress, bitcoin’s development as a viable everyday currency. Nonetheless, this level of popularity cannot be understated and with new companies like PayPal supporting bitcoin, the currency’s popularity will only continue to grow.
Report written by Luke Cuthbert
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