Bitcoin Crash Is Excellent Opportunity to Buy the Dip
One of the most important investment topics from 2020 onwards is the rising price of Bitcoin (CCC: BTC). However, the cryptocurrency fell 21% to just $ 32,389 in two days. This is the largest drop in two days since the novel coronavirus pandemic began, wiping out total market cap by nearly $ 140 billion.
Image of Bitcoin to represent cryptocurrency holdings
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In short, investors reacted to the stronger dollar and growing political uncertainty.
The cryptocurrency is still up around 89% after a month. Nonetheless, the decline left investors shivering. Peaks and valleys will always be part of investing in Bitcoin. But I believe this will only be a brief moment and normal service will resume soon. Covid-19 is on the rise again in Asia and the impeachment of President Donald Trump is rocking markets. The strengthening of the dollar and higher bond yields are also an important factor behind the decline in Bitcoin prices.
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However, all of these factors are temporary. In the long run, Bitcoin will continue to rise. Financial institutions are increasingly allowing users to buy, store, and sell cryptocurrencies. For this reason, in a recently released monthly report by Bloomberg Crypto, analysts forecast that Bitcoin could more than double from its current value in 2021.
Bitcoin is finally finding widespread acceptance
The recent spike in Bitcoin prices is due to several factors. A weaker dollar, economic optimism, large investment banks backing the scarce digital currency against inflation, and a weaker US dollar are some of the reasons. However, I believe that the biggest contribution is the higher institutional interest.
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Square (NYSE: SQ), Paypal (NASDAQ: PYPL), Nvidia (NASDAQ: NVDA) and CME Group (NASDAQ: CME) offer their users access to the cryptocurrency. All of these companies are large, diversified conglomerates. Hence, it is difficult to determine how much money these companies are making from Bitcoin. However, considering the rise in prices, it will make a significant contribution to profit in the future.
For example, Square's Cash app had Bitcoin sales of $ 1.63 billion and Bitcoin gross profit of $ 32 million in the third quarter of 2020. This corresponds to an increase of around 11 times or 15 times compared to the previous year.
Research by Pantera Capital shows that PayPal and Square are launching all new Bitcoin products on a daily basis. This is great news, especially for PayPal users. The online payment system provider enables its customers to buy, hold and sell cryptocurrencies like Bitcoin and Ethereum for as little as $ 1.
Similarly, a number of mid- or high-end graphics cards from Advanced Micro Devices (NASDAQ: AMD) have sold out, causing a shortage in the markets. This is mainly due to the fact that cryptocurrency miners buy them in bulk to build machines for mining Bitcoin and similar cryptocurrencies.
CME Group, the largest largest exchange for financial derivatives, also offers Bitcoin futures contracts. Up to December 16, 2020, an average of 8,560 CME Bitcoin futures contracts - the equivalent of around 42,800 Bitcoin - were traded daily. At the same time, institutional interest continues to grow. The number of large open interest holders hit a record 110 in December.
Here to stay
We have been here before. Dizzying ups and downs are not a new phenomenon for Bitcoin. However, the cryptocurrency is finally gaining institutional support that has long eluded it. The pandemic certainly helped. During the widespread lockdowns, online trading and payments increased, and interest in digital currencies grew exponentially.
Bitcoin has always been volatile. However, the past year has shown that any asset class can get shaky in an uncertain environment. It has always been viewed as an interesting store of value due to the final cap of 21 million and the difficulty of mining it. However, the wider acceptance brings with it a sense of credibility and stability that was previously lacking.
To me, that's what makes it an interesting asset, despite the risks involved. The prospect of central banks issuing their own digital currencies will always be there. Now that financial institutions like BlackRock (NYSE: BLK) are preparing for this, the future looks very bright for Bitcoin.
At the time of publication, Faizan Farooque had positions (neither directly nor indirectly) in the securities identified in this article.
Faizan Farooque is a contributing writer for InvestorPlace.com and numerous other financial websites. Faizan has several years of stock market analysis experience and was a former data journalist at S&P Global Market Intelligence. He is passionate about helping the average investor make more informed decisions about their portfolio.
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