Why is Bitcoin rallying again?
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The cryptocurrency Bitcoin (CRYPTO: BTC) hasn’t exactly occupied the limelight as much as it used to over the past few months. Remember, this flagship cryptocurrency was one of the best-performing assets in the world during 2020.
It seems ludicrous now but, back in March 2020, Bitcoin plunged to almost US$5,000 a coin. By April 2021, it was back making new all-time highs of more than US$60,000 a coin, meaning some investors enjoyed gains of 10x or more in just over a year.
But the past few months have told a wildly different story. Since topping out above US$60,000 in April, Bitcoin has spent the subsequent 4 months falling back to Earth. By mid-July, it was back under US$30,000 a coin, quickly halving any gains investors had made by April. Such is life for a cryptocurrency investor.
What’s behind Bitcoin’s volatility in 2021 so far?
What caused this collapse? Well, with a decentralised asset like Bitcoin, it’s hard to know for sure. But most commentators put it down to a combination of the regulatory crackdown on cryptocurrencies in China as well as Tesla Inc (NASDAQ: TSLA) CEO Elon Musk’s whipsawing.
Musk made headlines earlier this year when he announced Tesla would accept Bitcoin as a payment method from its customers after the company invested some of its balance sheet cash into Bitcoin. Just a few months later, Musk backflipped, stating Tesla would no longer accept Bitcoin due to the environmental cost of mining the coins.
But that was then, and this is now. Since mid-July, Bitcoin has again surprised investors with a remarkable rally. The crypto has risen from below US$30,000 to just today crossing the US$50,000 price mark for the first time since May. Yep, in just over a month, Bitcoin has increased by almost 50%.
So what’s driving it? Again, it’s hard to say. A report in today’s Australian Financial Review (AFR) points to a self-fulfilling prophecy, stating that “the revival in virtual currencies has excited animal spirits again among the crypto faithful”.
However, the report also warns that the rally might be nearing its peak. It quotes Rick Bensignor, CEO of Bensignor Investment Strategies, as stating, “[Bitcoin is] getting nearer the higher end of what I expect as a new trading range in the low-$US40,000s to low-$US50,000s”.
We’ll have to wait and see what happens from here. If there’s one thing we can probably all agree on with Bitcoin, it’s to expect the unexpected.
Should you invest $1,000 in Bitcoin right now?
Before you consider Bitcoin, you’ll want to hear this.
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*Returns as of August 16th 2021
Motley Fool contributor Sebastian Bowen owns shares of Bitcoin, Ethereum, Ripple, and Tesla. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and has recommended Bitcoin, Ethereum, and Tesla. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.