Bitcoin Booms As Dollar Drops

Bitcoin Booms As Dollar Drops

over 3 years ago2 mins

Mentioned in story

Bitcoin prices are sitting near their highest level since the great cryptocurrency boom of winter 2017 – but it’s not the only unusual investment getting a lot of love this year 💘

What does this mean?

The price of a single bitcoin – the oldest and largest digital token – hit a 13-month high last week around $12,400. The reasons for renewed investor interest are characteristically uncertain; but recent weeks have seen bitcoin’s price correlation with gold reach record levels.

Claims that the cryptocurrency represented a gold-style “safe haven” appeared debunked back in February. But with the US dollar’s international clout in decline, bitcoin may be benefiting from investors’ search for stores of value. Gold and bitcoin are both denominated in dollars, too – and the falling currency may also boost prices by making them appear cheaper overseas.

Source: Coindesk
Source: Coindesk

The dollar’s drop may be bad news for last year’s big cryptocurrency innovation: “stablecoins”, many of which pin their values to the greenback’s. But there’s a new crypto kid in town anyway. Decentralized finance, or “DeFi”, involves supposedly autonomous lending and trading networks – typically built on top of rival blockchains like Ethereum, but often using bitcoin as (you guessed it) a store of value. Since the start of the year, the amount of bitcoin “wrapped” in DeFi networks has risen more than 30-fold – and that additional demand could also be fueling bitcoin’s resurgence 🎁

Why should I care?

The US central bank’s response to coronavirus, including unprecedented support for investment prices, is only reinforcing cryptonauts’ long-held view that traditional financial systems are unsustainable. Not that the old guard are going quietly: the US, China, and even investment bank Goldman Sachs are currently looking to set up their own digital currencies.

Rising inflation expectations may yet lead to further drops for the dollar – and potentially a return to the heady days of late 2017 for bitcoin. But whether the even greater complexity of DeFi represents lasting innovation or just more speculation remains to be seen: the FTX DeFi Index of 11 tokens has more than doubled in weeks, but high volatility has also led to the likes of LINK – now the fifth-largest cryptocurrency – losing investors a lot of money.

Cryptocurrencies remain as risky as ever
Cryptocurrencies remain as risky as ever

For those looking for something more solid, meanwhile, another alternative investment has been having a great 2020. Thanks to surging DIY demand and low supplies, this year’s best-performing commodity – far outstripping glitzier gains for the likes of gold and silver – has been wood. The price of lumber futures has more than doubled in 2020, and risen more than 50% in the last month alone… 🌲

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