Bitcoin at $ 50,000: 3 reasons it’s about to heat up

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On August 23, Bitcoin (CRYPTO: BTC) briefly crossed the $ 50,000 mark for the first time since May. While still down over 20% from its all-time high, Bitcoin is now up over 50% from the recent low it hit in July. Ethereum (CRYPTO: ETH), the second largest cryptocurrency by market cap, did even better, climbing about 90% over the same time frame. This trading illustrates how Bitcoin and Ethereum remain extremely volatile, and it’s unclear what they will do in the short term.

However, zoom out on a period of a few years and Bitcoin’s success and growth trajectory becomes clearer. Here are three simple reasons Bitcoin has more room to function.

Image source: Getty Images.

1. Institutional adoption

The catalyst that has driven Bitcoin’s shift from unconventional markets to the mainstream is institutional adoption – which is just a fancy way of saying that big companies are entering the cryptocurrency space. Their involvement comes in the form of accepting Bitcoin as a form of payment, holding Bitcoin as an asset, trading Bitcoin, creating Bitcoin-centric financial products, and more. The demand is increasing as more and more organizations are interested in this space.

As a result, the cryptocurrency market has changed a lot over the past few years. Today it is dominated by larger players. In July, the leading US cryptocurrency exchange Coinbase Global (NASDAQ: COIN) released its institutional report for the first half of 2021. The report found that “a growing share of our customers now see BTC as a mainstay of their long-term portfolios and an emerging reserve of wealth that rivals gold. […] BTC stored $ 657 billion in global wealth at the end of the first half as institutional investors such as traditional hedge funds, endowments and corporations increased their exposure during the period. ”

Order volumes support this assertion. Coinbase’s institutional trading volumes accounted for 68.6% of its total volume in the second quarter, down from just 64.1% in the previous quarter and 60.7% in the period last year. Coinbase has also discovered that Ethereum and other cryptocurrency assets are starting to account for a larger portion of total trading volume. In the second quarter, Coinbase achieved higher Ethereum transaction volumes than Bitcoin for the first time in its history, as decentralized finance and non-fungible tokens gain popularity. In short, a lot of money is pouring into cryptocurrency.

2. More financial products and better accessibility

User-friendly apps, sophisticated reports, and detailed tax accounting make it easier for people like you and me to buy cryptocurrency. Depending on the track record and security of the exchange, investors can now earn considerable interest in Bitcoin, Ethereum, alternative coins, and stablecoins.

Similar to a bank, exchanges like Coinbase will pay retail investors a lower interest rate than what the company thinks it can earn by lending that asset. Considering the demand for large-scale transactions, this interest rate is comparatively higher than your typical US savings account. This is a win-win situation, as the exchange lends your asset as collateral in exchange for a relatively safe and better-than-market interest rate.

Similar to stocks, cryptocurrency assets have different risk profiles that may suit the preferences of a particular investor, adding yet another layer of sophistication to the space. Speculative investors can now buy alternative coins like Polygon, Cardano or Chainlink from a variety of exchanges, many of which pay interest.

3. Better investor protection

Basically, regulation aims to provide market participants with basic protections while creating a fair market. There is a lot of talk about the dangers of regulation, especially SEC intervention and oversight of cryptocurrency exchanges. However, it is clear that the executives of some of the biggest cryptocurrency companies actually support the regulation.

“I think we’ve always welcomed reasonable regulation in this space,” Coinbase CEO Brian Armstrong said on the company’s second quarter conference call. “We just want to be treated on an equal footing with all other traditional financial services companies.”

Zac Prince, CEO of BlockFi, said the following in a blog post on July 28:

Since Flori and I started BlockFi, we have had ongoing discussions with regulators as cryptocurrency is a new area for many and we knew there would be questions. We have said time and time again that the key to our industry’s success is proper regulation. Ultimately, we see this as an opportunity for BlockFi to help define the regulatory environment for our ecosystem.

Regulation has the potential to lend legitimacy to the cryptocurrency market. As we have seen with institutional adoption and the advent of new financial products, Bitcoin is gaining ground in different industries tends to be a good thing for this market.

Heat

The stigma around Bitcoin and other cryptocurrency assets usually stems from the idea that they are difficult to understand or that the market is opaque. Despite all the advances mentioned, this stigma remains a barrier to entry for many investors.

Regulation can complicate the cryptocurrency market in some ways and make it less profitable for some players, but it could also add a layer of confidence for retail investors and institutions. Transparency, whether it comes from regulation, easier-to-use financial products, or better tax documentation, is essential for the future of Bitcoin as a financial asset. The price of Bitcoin can predict whatever it wants in the short term. But in the long run, it’s easy to see the rich potential of Bitcoin as the market becomes more mature.

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Daniel Foelber owns shares of Bitcoin, Coinbase Global, Inc. and Ethereum and has the following options: $ 315 long calls in December 2021 on Coinbase Global, Inc., $ 320 short calls in December 2021 on Coinbase Global, Inc. , and short calls in September 2021 of $ 320 calls on Coinbase Global, Inc. The Motley Fool owns stock and recommends Bitcoin and Ethereum. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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