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08 Jan 2021
4 min read

Bitcoin Rallies to $40k as Exchanges Encounter Disruptions

Bitcoin Rallies to $40k as Exchanges Encounter Disruptions

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Key Takeaways

  • A new historic high for bitcoin
  • Staggering demand leads to technical difficulties

The price of bitcoin reached a new high on Thursday, surpassing the $40,000 mark amid a historic rally that saw the price climb by one third in the past seven days, leading to crypto’s best week since 2017. On Thursday, the heavily volatile digital asset broke cryptocurrency platforms and exchanges as major liquidity providers experienced disruptions in their services, leaving traders and investors unable to participate in the market for short periods of time.

The rapid growth for bitcoin presented challenges for cryptocurrency providers on Thursday as many of them encountered connectivity issues during the times that coincided with the high-speed price increase. As traders and investors piled on in the crypto market, the enormous increase in traffic caused a temporary disruption and halted the buying and selling of crypto assets until the issues were sorted out shortly after.

Similar technical issues have occurred in the past. Exchanges have gone down due to the heavy traffic inflows, causing cryptocurrency platforms to buckle under the pressure as trading becomes temporarily halted. Since the market develops at lightning speed, cryptocurrency platforms and exchanges are likely to experience teething issues at times of great stress on the system that could sometimes lead to temporary outages.

 

Institutional Buyers Fuel Demand

On Thursday, the market encountered one of these events when bitcoin was so actively pushing higher that it not only broke the all-time high, but it also broke major systems that enable its trading. The massive rally on Thursday resumed a volatile run that saw the digital currency more than double in less than a month. Moreover, cryptocurrency market capitalization is now over $1 trillion, five times what it was a year ago. The wild bitcoin price swings on Thursday sent the number one crypto lower by $4,000 in about half an hour after it topped $40,000.

The price was able to recover swiftly and is now back above $38,000. The surge in demand in recent months is attributed to many institutional buyers in the market betting on very little supply, making bitcoin a popular investment as a way to hedge against faster inflation and a weak dollar. Additionally, bitcoin is viewed as a competitor to gold, boasting similar safe-haven characteristics.

Currently, bitcoin accounts for about two-thirds of the overall crypto market valuation and holds a market cap on its own of over $720 billion. Right after follows Ethereum, the second-largest cryptocurrency, which recently spiked above $1,200 for a single ETH and has a market cap of $136 billion.

Bitcoin has already achieved over a 30% increase for January, having registered a 340% return in 2020. The record-breaking rally in 2020 exceeds the growth of traditional assets such as stocks and bonds. The S&P500 index is up 16% for the past year, while Dow Jones Industrial Average has climbed nearly 8%. The biggest gain, however, goes to the EV maker Tesla. The company, led by billionaire entrepreneur Elon Musk, posted a gain of over 720% in 2020.

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