If a fintech solution could be the definition of the word 'fintech' - it could very well be Bitcoin that is that definition. Bitcoin really is an ingenious engineered combination of technology and finance making it a good candidate to describe fintech with a solution. Bitcoin started the year of 2020 trading at around $7,200 and has since then climbed up all the way to its current all-time high levels at around $32,300. Although it went all the way down to around $3,800 at some exchanges during the first reactions to the covid crisis back in Mars.
But why is bitcoin soaring in prices like this and who is buying it?
Well, there is no single answer to the above questions but we can try to break down the questions into more questions to give our self an idea about this.
First of all who is currently buying Bitcoin?
During the big bubble during 2017 and 2018, the increases in prices were driven by retail investors, meaning that ordinary people like you and I were buying bitcoin and other cryptos like crazy. There was not much infrastructure built on top of blockchains, such as exchanges and other kinds of payment rails which caused high fees and problems with the scalability of processing transactions and that started the whole scaling debate. During 2020 the bitcoin buyers have changed shape. The dominant buyer is no longer retail investors. The buyers are now replaced by Institutions, companies, and family offices - in other words; players with larger wallets. Here is to name a few of them:
What characteristics does bitcoin have to other forms of money?
Well, this is very interesting since if we look way back in history we quickly understand that there have been many kinds of different types of money. They all vary a lot between each other ranging from seashells to gold bars to what we have today, paper bills, also known as fiat money. Down below here in the table, you see the different traits and characteristics that money has with an overview of gold, fiat, and bitcoin. As you can see, Bitcoin, for example, scores low on Sovereign (Government Issued) since it is not issued through any type of governmental activity. Gold also scores low on that while fiat scores are high. Other traits where Bitcoin scores high and fiat and gold scores lower are Scarcity and you may wonder why it is so? Well, that is because newly printed bitcoins are predictable. There is a fixed amount of new bitcoins that will be added to the system that is cut in half every 4th year. Last year, in May 2020, there was such an event called the "halving event" where the inflation rate of bitcoin was cut in half. That will happen again in May 2024 and 2028 and so on. All the way until the year 2140. At that point, there will be no more bitcoins created at all. For fiat it is the total opposite - we know for a fact that all fiat currencies ever existed has always gone to zero and on average they have done it within a time frame of 106 years. The dollar, which is the biggest fiat currency in the world today has been that for 112 years, so we might reaching an end of the dollar in history, at least if we should believe historical numbers. Gold scores moderate because we don't know the amount of new gold that may be found in the future, making the supply hard to predict.
The history of money - and does all roads really lead to Decentralization?
During an interview on the popular YouTuber Ivan on Tech's channel when Alexander Mashinsky was invited to talk about his company Celsius, the graph below was shown. Mashinsky is a serial entrepreneur and founder of several very successful businesses and he has done the graph below here. What you see in the graph is the different kinds of money that have been the reserve currencies of the world over the last 600 years. As you can see, no fiat currency has ever lasted for more than about 100 years, and for the bitcoin believers, as Mashinsky and many others are, they now hope for bitcoin to become the next world reserve currency. Will it happen? Well, we don't know. The fact is that no one knows. But what we do know is that the world is getting more and more globalized and that many see the benefits of having a decentralized global currency that no single country or state can control. But will the governments around the world let that happen? Will they just sit on their hands while their currencies are being debased further due to the rise of bitcoin and other global decentralized currencies? Well, we don't know that either, but one can assume that they won't give up without a fight at least.
The prices of bitcoin on the 3rd of January each year since it was created