Bitcoin, having flirted around the $33,000 mark for a couple of weeks at the end of last year, began 2021 with a bang, extending its record-breaking rally with a 14.73% increase on Sunday morning, taking its value at the time of writing to $34,168.

Having finally broken the key $20,000 mark just over two weeks ago, the granddaddy of cryptocurrencies ended 2020 with 305% growth, adding 50% in the last two weeks alone.

With most financial markets closed for the holidays, the focus has been very much on crypto as Bitcoin passed $30,000 on Saturday and has kept on rising since.

What Is Causing the Surge in Bitcoin?

One of two questions are being asked at the moment with the other being ‘How long is it going to last?’ There are obvious comparisons to the bull run at the end of 2017. Then, economist Nouriel Roubini called it a ‘pure speculative asset and bubble with no fundamental value’. What followed a similar surge in prices was an abrupt crash and at least a year of consolidation and uncertainty afterwards. However, the circumstances are very different now to 2017 and here are the three main reasons why:

Institutional Investment – The involvement of institutions such as Grayscale and recently, the Rothschild Investment Corporation, has given cryptocurrency legitimacy in 2020 that it never had in 2017. Bitcoin, in particular, has seen demand grow massively from institutional investors, attracted by its supposed inflation-hedging qualities and the potential for quick returns.

Bitcoin’s gain of 305 percent in 2020 compares very favourably with the 16% increase in Wall Street’s blue-chip S&P 500 stock index (up 68% from its March lows), and gold’s annual 25% rise. Meanwhile, legendary Hedge Funders, Mark Yusko and Mike Novogratz serve institutional bitcoin investors at their firms, Morgan Creek and Galaxy Digital respectively whilst top investors such as Paul Tudor Jones and Stanley Druckenmiller have thrown their weight behind Bitcoin.

Institutional Adoption – Providing confidence to investors and general credibility to Bitcoin has been the institutional adoption of Bitcoin by the payments industry. PayPal’s acceptance of Bitcoin in October was a key moment, opening up the cryptocurrency to PayPal’s millions of users. Expectations are that Bitcoin will continue its ascent in becoming a mainstream payment method.

COVID-19 Hedging – 2020 has been a rollercoaster year for investors, with record volatility across all asset classes, which saw oil trading negatively and US Stocks lose a third of their value within a month. The US stimulus policy aimed at weakening the US Dollar has seen investors look for hedges. Gold, the traditional dollar hedge found support, but so did Bitcoin.

Sergey Nazarov, the Cofounder of Chainlink, said: “People have been steadily losing faith in their government currencies for years, and the monetary policies resulting from the economic impact of the coronavirus have only accelerated this decline.”

There are, of course, other factors that come into play, including the Bitcoin halving and the hopes for an ETF and a friendlier regulatory approach now that Jay Clayton, the ex-SEC head, has resigned. However, overall it is a very different playing field now than in 2017, so comparisons are limited.

At this stage, no one is sure where this Bitcoin ride is going and what is next for Bitcoin. So, whatever happens, be prepared for a white-knuckle ride in 2021.