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Bitcoin 2021: Making its way into Wall Street

bitcoin 2021

March 16, 2021 | 

425 Views | 

JOHN K MWANIKI | 

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Bitcoin is one of the most well-known cryptocurrencies today. Not to say that it has not had its challenges or that people have been particularly receptive to it. Since its launch in 2009, there have been speculators on both ends of the spectrum. Some people speculate that there is a bright future for this unregulated currency, while others dismiss it as a market bubble that will eventually burst. 

On February 17th, Bitcoin in 2021 made the news after it went above the $50,000 mark for the first time since its launch. Around the same time last year, it made the news for hitting the $10,000 mark, and this exponential growth in the span of a year may be a good reason why it is finally being accepted even in Wall Street firms.

What is bitcoin?

For those who are new to Bitcoin, Bitcoin is one of many cryptocurrencies. It was launched in 2009 by Satoshi Nakamoto. One of the fundamental differences between Bitcoin and fiat currencies is that it is not owned or regulated by any institution. People can exchange this currently directly between one another, and to prevent fraudulent behavior, every transaction is recorded in a public ledger called a blockchain. Because of this decentralization, no individual, organization, bank, or government can dictate the currency’s value.

Big firms showing interest

In the last couple of months, many people and companies have set aside their speculations on Bitcoin, and it has seen big investors finally show interest. Big institutional investors like MasterCard, PayPal, NVidia, and IBM have shown their interest by allowing transactions in Bitcoin or investing in Bitcoin. For example, in February of this year, Tesla announced that it had purchased $1.5 billion worth of Bitcoin and that its clients could purchase their products using Bitcoin

Such shows of faith from these big institutions coupled with the over 500% increase in prices in a year had led to its proponents feeling validated. It is also bringing in other big players like those from Wall Street.

Wall Street firms showing interest in Bitcoin in 2021

Wall Street firms can no longer turn a blind eye to Bitcoin. It, therefore, makes sense that even big Wall Street firms are showing interest in Bitcoin in 2021. According to Reuters on March 1st, Goldman Sachs, which launched cryptocurrency trading desk in 2018 but later scrapped it, has relaunched the project. Their goal is to trade non-deliverable forwards and bitcoin futures for their clients. They are also considering launching a Bitcoin Exchange trading Fund (EFT)

According to CNBC, there are other firms like J.P. Morgan that are also showing interest. They, according to CNBC, are investigating how the firm might get involved with cryptocurrency. This statement differs completely from remarks made by the firm’s CEO in 2017 that called Bitcoin a fraud and predicted that it would not end well. Many people are waiting for one of the 6 big US banks to show interest. This may be the ultimate stamp of approval for the cryptocurrency. One can, however, see why banks would be hesitant to make this leap, particularly since cryptocurrencies like Bitcoin are taking over some of their roles.

Reasons people are skeptical about bitcoin

Bitcoin has been around for over 11 years now, yet it is still facing opposition from institutions and sometimes even entire governments. Here are some reasons this could be the case.

  1. It is unregulated – In most cases, transactions are made through banks. They take deposits and issue loans and receive funding from their respective central bank. The central bank, in turn, ensures that the currency prices are stable. This lack of regulation by a central governing body explains why the prices of bitcoin can fluctuate the way they do.

  2. It is very volatile – The prices of bitcoin have grown significantly in the last year alone. However, it is not uncommon for the prices to skyrocket and fluctuate sporadically. For example, in 2020, the price of Bitcoin in February 2020 pushed past the $10,000 mark, but a month later, in March, it had plunged to lows of below $4000. In fact, it saw a 39% decline in a single day on March 12th. These extreme price fluctuations make it favorable for only those with high-risk appetites.

  3. It resembles a bubble that could burst – Financial bubbles like the Dotcom bubble and the Tulip mania have left people wary of any assets or industries that look overvalued. Since Bitcoin was launched, its price has gone up by over 1300%. From $0 per coin in 2009, Bitcoin in 2021 has now traded at over $50,000. That explosion in price is reason enough for some people to stay away.

Why more firms are expected to show interest

Despite the many reasons to fear bitcoin and other cryptocurrencies, it can be speculated that more firms will show interest as time goes by. Here are some reasons why;

  1. Bitcoin is a limited resource - The cap at the number of bitcoins that can be mined is 21 million, after which mining will cease. On the other hand, the demand for bitcoin is on the rise, and following the supply and demand rules, as the demand keeps rising, the prices will keep on going up. This is a good reason for people to keep investing.

  2. It is considered an inflation hedge - This reason builds upon the fact that it is a limited resource. A good inflation hedge is one whose supply is limited. Like gold, once the cap for Bitcoin mining is achieved, it cannot be exceeded. Some people speculate the cryptocurrency may replace gold as an inflation hedge, but that cannot be confirmed for now.

Conclusion

2021 has seen an unprecedented rise in the price of Bitcoin. At the same time, it has seen big Wall Street investors like J.P. Morgan and big institutional investors show interest in transacting and investing in Bitcoin. There are still many institutions that are choosing to stay away from the cryptocurrency market for various reasons. One can only wait and see what other big firms will take the leap into investing in Bitcoin.

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