Bitcoin Climbs to Record High as Inflation Fears Mount

Can Bitcoin continue to surge higher on the back of tailwinds such as rising inflation numbers and capital inflows?

New virtual money concept, Gold Bitcoins

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In the last 24 hours, the price of Bitcoin has surged to a record high of US$68,742.31, according to data from CoinMarketCap. The world’s largest cryptocurrency has now gained close to 8% in the last week and is up over 350% in the last year. Let’s see what has impacted the digital asset in 2021 and if it has enough fuel to end the year at all-time highs.

Widespread adoption of Bitcoin

Bitcoin gained momentum at the start of 2021 after electric vehicle giant Tesla disclosed it holds the cryptocurrency on its balance sheet. Several other companies, including Square and MicroStrategy, have exposure to Bitcoin as well. The widespread adoption of cryptocurrencies in recent months has been a key driver of rising prices, and this trend is likely to continue in the future.

The launch of Bitcoin ETFs

Another major reason for Bitcoin’s impressive bull run is the launch of crypto-related ETFs, or exchange-traded funds. Several investment firms in Canada have already launched Bitcoin and Ethereum ETFs this year. Now, financial regulators south of the border as well as in Australia have approved crypto ETFs, which is bound to drive institutional investment higher in this disruptive space.

There is a good chance for pension funds that have trillions of dollars under management to gain exposure to cryptocurrencies via ETFs.

A replacement for gold

Another near-term tailwind for Bitcoin is rising inflation rates. A report from the U.S. Labor Department states the Consumer Price Index rose by 6.2% year over year in October, which was the highest in more than three decades. Comparatively, economists projected the CPI for all items to rise by 5.9% in the last 12 months.

Bitcoin has been viewed as digital gold and is also positioned to replace the yellow metal as a store of value or a hedge against inflation. The number of total Bitcoins that can be mined is limited to 21 million, making the cryptocurrency an attractive alternative investment option.

Further, quantitative easing measures introduced by the Federal Reserve since the onset of the COVID-19 pandemic have pressurized the U.S. dollar, which, in turn, has increased demand for Bitcoin.

What’s next for investors?

Bitcoin has roared back to life since the bear market of 2020. It has more than doubled in 2021 and is up a staggering 34,000% in the last eight years. So, a $500 investment in Bitcoin back in October 2013 would be worth close to $175,000 today. In fact, the global cryptocurrency market is now valued at a market cap of more than $3 trillion, at the time of writing.

But historical gains don’t matter much to current or future investors. Let’s see if Bitcoin can continue to surge higher in the next few months.

Last month, I had written about PlanB, a Dutch cryptocurrency analyst who has 700,000 followers on Twitter. PlanB has accurately predicted the price movements of Bitcoin in the past on the back of a stock-to-flow model.

PlanB expects Bitcoin prices to surge past US$100,000 this year and even touch US$135,000 by end of 2021. Let’s see if the world’s most popular digital asset can touch these optimistic price targets.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Aditya Raghunath has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Square. The Motley Fool recommends Tesla and Twitter.

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