Bitcoin Prices in 2020: Here’s What Happened

For many reasons 2020 will loom large in future textbooks on financial history. 

This year saw the biggest drop-off in economic output since the Great Depression, the biggest spate of money printing in the Federal Reserve’s 107-year history spurred by a coronavirus pandemic, an epochal shift toward remote working and negative prices for crude oil futures.

Perhaps as important in the pantheon of monetary milestones, 2020 saw the first real signs banks, money managers, insurance firms and companies started to embrace fast-growing markets for cryptocurrencies and digital assets. 

An open-source software programmer going by the name Satoshi Nakamoto designed bitcoin 11 years ago, the first cryptocurrency. It was built atop a cryptography-based “blockchain” network that could support a peer-to-peer electronic payments system, one that wouldn’t be under the control of any single person, company or government. 

At the start of the year, bitcoin was still considered a fringe investment, disparaged by the likes of the billionaire investor Warren Buffett as having “no value.” By the end of the year, however, bitcoin has nearly quadrupled in value, reaching an all-time high above $28,000 and thrusting itself into the center of conversations among big investors and Wall Street firms.

Some bitcoin proponents saw the success of the cryptocurrency and its underlying blockchain network as validation of a landmark technology that might forever change finance. 

But what changed bitcoin’s price trajectory in 2020 was its growing adoption as a hedge against the potential currency debasement that might come from trillions of dollars of coronavirus-related stimulus payments from central banks and governments around the world.

The thesis derives from the hard-coded limits on bitcoin’s supply, which are programmed into the underlying blockchain network. Unlike government currencies that can be issued subjectively and at will by central bankers, only 21 million bitcoins can ever be created.

And bitcoin’s growing adoption as an asset that trades based on macroeconomic trends meant it provided investors and analysts with as good a prism as any through which to view the year’s monumental economic developments and rapidly shifting financial landscape.  

In the years before COVID-19 hit, low interest rates and the U.S. dollar’s reign as the global reserve currency allowed the U.S. government and its corporations to amass a heavy debt load that many observers warned was unsustainable. Once the pandemic hit, authorities’ response was to invoke what one leading economist described as the “war machine”: a Federal Reserve willing to finance U.S. government emergency-relief packages – and budget deficits – in the trillions of dollars. 

Eventually, markets from stocks to bonds became hooked on the expectation that stimulus would be provided in amounts needed to keep investors from suffering losses deep enough to impair confidence and derail the economic recovery. As national authorities and monetary policymakers kept promising more and more stimulus, bitcoin’s price went up.

The cryptocurrency’s outperformance through it all eventually attracted the notice of big traditional finance players including JPMorgan Chase, BlackRock, AllianceBernstein, Morgan Stanley and Tudor Investment, which responded by buying billions of dollars of the previously scorned asset and flattering it with bullish research reports.   

Whether due to causation or correlation or merely wishful thinking, the bitcoin market, long viewed as a hotbed of volatility and unfettered speculation, seemed to rise in 2020 with nearly every new headline.  

The story of bitcoin in 2020 might be a classic tale of how a new technology emerges at the fringe, gradually wins the attention of a few well-heeled and respected money managers, then suddenly gets swept up by the rest of Wall Street, heralded as the next frontier for savvy investing and fast profits.

January-February: The bitcoin market struggles for focus as questions swirl about the U.S. dollar's dominance.

Trillions of dollars of money printing this year by the Federal Reserve and other central banks have galvanized bitcoin’s use as a hedge against currency debasement by investors from both cryptocurrency markets and traditional finance. 

But even before the pandemic-related economic stimulus hit global markets, economists were already openly speculating whether the U.S. dollar could survive another decade as the world’s dominant currency for international payments and foreign reserves. 

Historically, major world events and shifts in the geopolitical balance of power had always led to one currency supplanting another as the world’s most important medium of transaction, unit of accounting and store of value. The U.S. dollar had emerged as the world’s leading currency during the early 20th century when it took over from debt-strapped Britain’s pound sterling. A century before that, Holland’s guilder was undone by the French Emperor Napoleon’s invasion.

In early 2020, China’s proposed digital currency was seen as a potential threat to the greenback, and former Bank of England Governor Mark Carney went so far as to propose a “synthetic hegemonic currency,” potentially provided “through a network of central bank digital currencies.” 

“There’s a lot of discussion of substitutes for the dollar as the global reserve currency,” Bill Adams, senior international economist for the U.S. bank PNC, told CoinDesk around the start of the year. 

But based on officials tallies of the dollar’s share of global foreign reserves, the U.S. currency looked as strong as ever.  

It didn’t take long in 2020 for the bitcoin market to get a jolt – after a U.S. drone strike killed a top Iranian commander during the first week of January, fueling speculation that heightened geopolitical turmoil might spur demand for the cryptocurrency. Bitcoin jumped to $7,300 as analysts said it might serve as a safe-haven asset similar to gold, whose value is expected to hold in times of geopolitical or economic instability. 

Though the price gains held, the flap soon faded from the news and crypto traders turned to what they thought would be the bitcoin market’s marquée event of the year – the once-every-four-years “halving,” where the pace of new supply of cryptocurrency issued from the Bitcoin network would get cut by 50%. The process, hard-coded into the blockchain’s underlying programming, was expected to occur in May.

In the month leading up through February, Google searches on the term “bitcoin halving” had doubled to their highest levels since 2016, and some enthusiasts even created a dedicated website, bitcoinblockhalf.com, to count down the remaining days, hours, minutes and seconds until it happened.

Cryptocurrency lenders reported a quickening pace of customer activity, in some cases more than 10 times the loan growth reported by big banks like JPMorgan Chase. The flip side was Wall Street firms and banks were stuck with the traditional economy, where U.S. growth had slowed to 2.3% in 2019 from a 2.9% clip in 2018. (Although the economy was decelerating, a newly launched futures contract focused on the U.S. presidential election, launched by the cryptocurrency exchange FTX in early February, suggested Donald Trump had a 62% chance of winning.)  

Bitcoin traders, many of whom had long since written off the stock market, bandied about analyst predictions that the halving could send prices skyrocketing to $90,000 or higher. 

They had no idea, of course, how dramatically the events of the ensuing months would reshape the global economic outlook. By late February, traders saw clearly just how far bitcoin was from being a safe haven: Prices suddenly tumbled alongside U.S. stocks as authorities globally struggled to stem the spread of the coronavirus beyond China. U.S. Treasury bonds, seen as a traditional safe-haven asset, rallied. So did gold. 

Bitcoin is “not the same as owning Treasury, and not the same as owning gold,” the cryptocurrency analyst Greg Cipolaro told CoinDesk on Feb. 24.   

Jeff Dorman, chief investment officer of the crypto-focused firm Arca Funds in Los Angeles, raised the prospect of a separate potential catalyst for higher bitcoin prices: Monetary-policy easing by the Federal Reserve to stimulate coronavirus-infected markets. Since the cryptocurrency’s ultimate supply was controlled by the blockchain’s underlying programming, it couldn’t be inflated away by central bankers or any other humans, the reasoning went.

“I don’t expect bitcoin to trade as risk-on or risk-off asset,” he said. “But over a longer period of time, anything that’s inflationary, or, said another way, devalues other currencies, strengthens the purchasing power of bitcoin.”

March-April: The coronavirus hits the economy, and the Federal Reserve opens the money spigot.