Bitcoin, the leading crypto currency, has recently dared to climb to price levels that have not been seen since the beginning of 2018, with nearly 16,000 USD. This level, which can be attributed solely to the back and forth in the U.S. presidential election and a potentially accompanying uncertainty about the political future of the world’s largest economy, is certainly not enough. On the one hand, there can be no talk of great uncertainty in view of appreciating emerging market currencies and rising share prices worldwide. On the other hand, the upward movement of the crypto currency has been continuing since the beginning of September.
The main driver of the positive dynamics is the hope for a long-term increase in demand and growing general acceptance. The basis for this assessment with regard to institutional investors are reports on the asset managers Grayscale and Fidelity. The Bitcoin fund of the former recently recorded record inflows, while Fidelity announced that it would expand its activities in Asia. The prospect of more demand from private households is likely to link Bitcoin supporters with announcements by payment service provider Paypal. Not only is it now possible to buy, store and sell Bitcoin in the U.S. through the platform, but the company is also a major player in the U.S. market. Beyond that it is to give promptly the option to pay with dealers with crypto currencies. Herein some observers see an important step, in order to simplify handling as well as the employment of Bitcoin for citizens and prepare thus the soil for an increasing acceptance of the crypto currency.
A given regulatory framework is regarded as fundamental for a long-term continuing demand of (institutional) investors and private citizens for crypto currencies. The EU Commission took a major step in this direction at the end of September with its proposal for the regulation of crypto assets („Markets in Crypto-Assets“ or MiCA). The aim is to ensure uniform rules throughout the EU. The EU regulation could be implemented in the member states by the end of 2022. It is unlikely that the European Central Bank’s efforts in favor of a „digital euro“, i.e. a digital EUR central bank currency, will go that quickly. The fact that the central bank is increasingly discussing this issue and thus bringing it to the public attention is already seen as a success by some crypto-currency advocates (although it is unclear whether block chain technology will play a role here at all).
These arguments for the price increase are quite understandable. However, they are not a guarantee for a continuation of the positive dynamics or even a sideways movement. The (hope for an even) higher demand in the future can disappear as quickly as it has arisen – the past has already proven this several times and impressively. This is especially true as long as a trustworthy concept, on the basis of which a „fair value“ can be derived, does not exist in contrast to traditional currencies (e.g. purchasing power parity).