Bitcoin is back at all-time highs—What does this mean for Hodlers?

Bitcoin has reached a new all-time high on exchanges, capping an extraordinary year in which it has established itself as a unique asset. What does it mean, and what’s next?

On November 30, investors watched as prices ticked over into uncharted territory on various major exchanges. 

Among the first to announce record prices were Kraken and Gemini, with the co-founder of the latter, Tyler Winklevoss, confirming the news on social media.

“Onward and upward we go to the moon!” he wrote as BTC/USD reached $19,833.

Many others soon followed, with the sense of achievement palpable among those who had waited three years to revisit levels which appeared only briefly in 2017. 

Now that they have returned, what does it say about Bitcoin?

It’s a real financial asset

Hitting levels from three years ago, having dived as low as $3,100 in the intervening period, has major implications. 

At the pit of its bear market, economists in particular lined up to call the slow death of Bitcoin, confident that it would never recover. Some of those voices, such as Paul Krugman, Nouriel Roubini, and JP Morgan CEO Jamie Dimon, have continued to dismiss it, but meanwhile, Bitcoin has demonstrated that detractors are of no importance.

Behind the scenes, financial entities have been monitoring and then implementing support for Bitcoin, subtly hinting that they believe in its longevity. 

2020 was the year in which that narrative broke into mainstream consciousness, with Bitcoin infiltrating not just the institutional but retail sphere via the likes of Square and PayPal. 

As of November, hardly a week goes by without a new support announcement, with Guggenheim the latest heavyweight to state that it is ready to enter the market. 

This infiltration has happened without any PR or sponsorship, and without any specific person or company taking responsibility for “selling” Bitcoin to the global economy—it happened, as statistician Willy Woo described, entirely organically.

It is hard to think of another financial asset which has achieved a similar feat without financial backing. A broad comparison can be made with the internet as a whole, with entities going online out of choice after seeing the clear benefits and necessity of doing so. 

It’s less volatile

Those observing market behavior at the all-time highs may not agree that Bitcoin has matured enough to be traded like other macro assets.

Broadly speaking, this is untrue. 2020 has demonstrated that in times of need, Bitcoin can beat regular markets to perform more steadily, as well as bring in superior returns. A case in point was the oil crash earlier in the year, which gave Bitcoin additional praise due to its inability to not enter negative figures. Oil, by contrast, traded below $0 per barrel.

As time has gone on, institutional uptake has shaken off even the more risky facets of Bitcoin, showing that regardless of growing pains, it is an asset which is maturing in a defined and reliable manner.

“It’s super difficult to predict where the Bitcoin price is going,” Michael Sonnenschein, managing director of investment giant Grayscale, told CNBC this week.

“But if our inflows at Grayscale are any indication of the types of investors that are interested in this asset class, or the sizes of the allocations being made, I do feel like we’re just getting started.”

In the run-up to this year’s all time highs, a notable feature was the lack of media hype and accusations that Bitcoin had entered another bubble. Only diehard critics Nouriel Roubini and gold bug Peter Schiff appeared unconvinced.

“Bitcoin has no role in institutional or retail investors portfolios. It is not a currency: not an unit of account, not a scalable means of payment & is a highly volatile store of value,” part of a series of tweets from Roubini stated late last week.

It’s here to stay

Beyond the psychological significance of Bitcoin U-turning back to all-time highs, the strength of its network effect now appears more undebatable than ever. 

Bitcoin is self governing, and does not require any assistance to preserve its integrity, regardless of how many use it or how much it costs in terms of any other asset. 

The past three years has decisively proven this—bear markets come and go, miners capitulate and return, all under the auspices of automatic difficulty readjustments, the essential feature of Bitcoin economics.

The process by which miners compete for block subsidies, thus maintaining the Bitcoin network and keeping transactions flowing, is all but incorruptible—to compromise it, nodes would have to consent to corruption, which would make Bitcoin lose value and in turn make everyone, including themselves, much poorer.