Why did 2020’s bull run result in all-time high prices?

As of today, the crypto market has experienced two major bull runs. The first one was at the junction of 2017-18 and the second one is what we are experiencing at the time of writing, which started in the Q4 of 2020. Although each bull run resulted in new All-Time Highs, the current cycle is quite different from the previous one and has allowed the industry to break its own records.

Therefore, some crucial questions are bound to be asked, for instance, what are the primary drivers of this cycle, what could be the duration of this run, and whether there would be a sudden crash just like 2018 or not.

Supply and demand

This is the basic principle in any financial market that governs the prices of different assets. The concept is quite straightforward and states that when the difference between supply and demand increases, such that the demand remains higher, the cost of the asset is bound to go higher. This is exactly what has been happening with most of the cryptocurrencies, BTC in particular.

To make it easier for everyone, let’s try to understand it from the perspective of BTC as it’s the most popular cryptocurrency, although the concept remains the same for every crypto.

The maximum supply of BTC is fixed forever and the demand is continuously increasing and is expected to behave so for the next few months as well. From March 2020, there has been an increase of about 800% in the demand and this has driven the price primarily.

If you look at the trend carefully, every major bull run beats ATHs of its predecessor and this is because the demand for cryptocurrencies is continuously increasing. In this specific cycle, Covid-19 has played a major goal as, due to the lockdown and other financial uncertainties, people started finding alternatives to store their wealth and most importantly, increase its value over time as well.

Halving

The crypto market is quite disciplined when it comes to following the trends as they have been repeating ever since the launch of the first cryptocurrency. Moreover, it has also been observed that BTC is always the pioneering currency in every bull run to set the direction and then the rest of the digital currencies follow along.

Therefore, one of the catalysts in this cycle happens to be the halving of Bitcoin that occurred in May. As a result, the mining rewards were decreased to half, as they crumbled down to 6.25.

This is exactly the same trend as exhibited in 2016 and onwards when the previous halving took place and within the next 12 months, the industry hit its first ATHs for most of the coins and tokens.

Institutional adoption

This is also one of the most important reasons and instills more confidence among individual investors. While in the initial years, cryptocurrencies were looked upon suspiciously, many financial organizations have hopped into the niche, thus driving a great deal of traction.