Bitcoin has been on the rise since 16 December, when it reached again a high of $20,000. However, this time it has broken every limit possible reaching prices of $34,000. One of the many explanations for this is due to US investors investing their Covid-19 stimulus package on Bitcoin.
On 30 December, US consumers received the $600 stimulus checks agreed as part of the $900bn Covid relief bill, which was passed just before the New Year. Even though the majority of consumers were in dire need of the $600 stimulus check, there were others who profited from it. Those individuals were consumers who either were left unscathed by the pandemic or they could even have profited from it. Thus, a $600 check was an enjoyable surprise.
Bitcoin’s popularity and it being the only asset available to invest in during Christmas and over the weekend, increased its demand massively.
How stimulus checks drove Bitcoin investment
Consumers who profited from the $600 stimulus check, and didn’t have access to any other stocks during Christmas, drove Bitcoin’s prices upwards. The stock market was closed on New Year’s Day and over the weekend.
There was a distinct lack of wildly out of the money call options, no access to shares of popular internet companies, and because forex trading has been mainly volatile or not well-known enough to certain consumers; consumers decided to invest their stimulus check on Bitcoin.
However, this buy-off alone wasn’t enough to drive Bitcoin’s prices to new highs and more investors due to fear of missing out of the profits eventually joined in. Bitcoin prices have great impact on behavioral investors. Investors who do not think rationally when investing on an asset.
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This is because many cryptocurrency investors are individual consumers who do not think clearly when buying the crypto, they are affected greatly by the trend rather than the asset itself. Thus, when those investors came across Bitcoin’s inflated price, they feared that they would miss out from the profits of the rising price, making them to invest on Bitcoin, driving prices even higher.
The rise before the fall
As we have seen from the previous years, Bitcoin is expected to reach a certain high and then drop again, making the stimulus check investments worth nothing.
On the 4 January, when Bitcoin declined by 7.5% in one day, its decline came as no surprise as the majority of the investors starting to loose trust on the cryptocurrency, fearing it would follow the norm of previous years and decrease significantly.
This has caused many investors who have already bought Bitcoin to sell it and enjoy their profits now rather than waiting longer and risking losing their money. Thee are many investors that believe Bitcoin will decrease again; however, those investors haven’t bought any of the cryptocurrency, they are more than willing to short-sell Bitcoin, and enjoy profits from betting against the cryptocurrency rather than with it.