Bitcoin prices, the most active cryptocurrency, have outperformed other safe-haven commodities during 2020. Concerns over the spread of the coronavirus and the decline in the value of the US dollar have increased demand for cryptocurrency trading. Bitcoin trading volume has increased throughout 2020, with prices rising to the second-highest monthly close on record as of October 31, 2020. While gold has always been considered a safe-haven asset, throughout the pandemic the yellow metal has benefited in tandem with risk assets. As traders wonder whether the world will move toward a new alternative currency, bitcoin has gained traction relative to other alternatives including precious metals.
Bitcoin rises to 34-Monthly High
Bitcoin close on October 31 at 13,816, which was the highest monthly close for the cryptocurrency since December of 2017. Bitcoin prices have rallied throughout 2020 rising a whopping 88%. Traders have piled into the cryptocurrency has concerns over the dollar have continued to erupt. In March of 2020, the US Federal Reserve cut interest rates to zero. The central bank when on to install a bond purchase program that was unlimited meaning that the Fed would purchase treasure and agency bonds helping to push interest rates lower, and help buoy economic growth. Their efforts have eroded the value of the US dollar, which has helped buoy both bitcoin and gold prices.
Bitcoin has outperformed other assets and has outstripped the demand for gold. Bitcoin prices have outperformed gold prices which can be viewed by dividing bitcoin prices by gold prices. In 2020, bitcoin has outperformed gold by more than 50%, and the ratio has increased to the highest level since early 2019. The momentum of the ratio between bitcoin and gold prices has turned higher as the MACD (moving average convergence divergence) on the ratio has generated a crossover buy signal. Despite the increase so far in 2020, the ratio between bitcoin and gold is projected to move even higher.
Cryptocurrency Volume has Surged
Cryptocurrency volume in 2020 has surged led by gains in derivatives. The total volume of Q1 cryptocurrency derivatives in 2020 exceeded $ 2 trillion, an increase of 314% from 2019 four quarters’ average. Over 24 hours in October of 2020, Tether was the most purchased cryptocurrency, with 47.85 billion U.S. dollars in 24-hour trade volume at that time. Bitcoin was second with 39.28 billion in the volume of 24 hours.
Paypal Announce Cryptocurrency Migration
Cryptocurrencies also gained traction following the announcement in late October by PayPal that they would introduce a new feature that will allow users to buy, hold and sell cryptocurrencies. The company said in that its new cryptocurrency service would launch in the U.S. in the coming weeks and will initially feature bitcoin, ethereum, bitcoin cash and litecoin. Paypal also said that by early 2021, the company also plans to let customers use crypto to shop with its network of 26 million retailers. This shift provides access to cryptocurrencies for millions of vendors and creates the inclusion that is necessary for a payment system to flourish using cryptocurrencies.
The Bottom Line
Cryptocurrencies have experienced robust gains in 2020, outperform many other alternative currencies such as precious metals. Bitcoin for example has outperformed gold in 2020 by more than 50%. Derivative volumes of bitcoin have surged, and PayPal recently announced that it will provide access to more than 26-million retailers which should continue to increase the inclusion of cryptocurrencies.