Analysis: Bitcoin Soars 260% in Three Months; Is This Spike Different From 2017?

RIO DE JANEIRO, BRAZIL – Bitcoin began an impressive rally and if in the past it was hard to picture the digital currency reaching US$20,000, now it has topped US$40,000, hitting US$40,216 at its daily peak, the equivalent of R$216,939 yesterday.

In these first seven days of 2021 alone, the largest cryptocurrency in the world has already spiked over 34%, and the cumulative appreciation over the past three months is now above 260%.

According to experts, although it is not possible to rule out a short-term correction of the cryptocurrency, there are features that differ greatly from the hike in 2017, when the currency soared to almost US$20,000 and then plummeted by more than half its value in only one month.

Safiri Felix, director of Transfero, says that three years ago the Bitcoin appreciation was boosted by the interest of individual investors, who discovered the existence of this market and tried to profit from it. Nowadays, it is institutional investors who drive the cryptocurrency.

“The buying flow is much higher, because it is large banks and Wall Street brokers who are purchasing Bitcoin,” assesses Safiri. According to him, there are several reasons to be optimistic about the value of Bitcoin due to the gap between supply and demand.

In May last year, the amount of Bitcoin entering circulation every ten minutes was cut in half in a movement performed every four years known as halving. In parallel, the crypto market made headlines with Facebook’s intention to launch Libra, its own cryptocurrency.

Months later, Fidelity launched an investment fund in Bitcoin and PayPal began to accept the purchase and holding of assets denominated in the digital currency on its platform.

Fabrício Tota, Bitcoin Market New Business Director, sees this distinction between the two rallies clearly. “Last year we saw some companies, funds and managers allocating and advocating in the crypto cause. These are people who should provide enlightenment because they manage funds with thousands of clients, so their investment theories are much more qualified,” he explains.

According to Tota, an additional incentive for investors to buy Bitcoin is the wave of monetary and fiscal stimulus that has taken over the world since last year with governments and central banks trying to tackle the economic challenges triggered by the coronavirus pandemic.

“Any indication that the stimulus will continue, from the election of a Democrat [President Joe Biden] in the world’s largest economy to the second wave of the coronavirus, is news that add value to Bitcoin, because it has a limited and known emission, while central banks can inject unlimited liquidity into the markets,” he argues.

For the future, both specialists were cautious in projecting how high the currency’s value may reach, because last year’s most daring estimates mentioned Bitcoin at R$200,000, a figure that has already been comfortably exceeded.

“I can’t think of any reason for this trend to end, it should continue along this year and the next psychological barrier is US$50,000” says Safiri. In this scenario, each cryptocurrency unit would cost around R$270,000 using today’s real/dollar exchange rate as a base.

Tota believes that it is no longer nonsensical to believe that Bitcoin could reach the market value of gold. “As Bitcoin is a financial service, in the past its maximum market value was compared with those of large payment means companies like Visa. However, Bitcoin is now worth much more than Visa. The truth is that there is no way to estimate how much the digital currency may be worth in the long term,” he concludes.

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