Bitcoin has broken its own records several times last year and ends the year at around $ 30,000. To date, BTC price up to $40,000. What things did contribute to such rapid growth and could we expect it in the future?
Fiat currency risks. In the outgoing year, the regulators of the largest countries again resorted to the policy of quantitative easing or QE. One of the main risks of using the relevant instruments is the depreciation of the national currency. In particular, US dollar, with supply (M2) increased by $ 3.5 trillion has devalued against the euro by about 15% from March to December 2020.
Most growth starts with the expansion of the Fed’s balance. These funds are largely spent on supporting the stock market, which allows consumer inflation to remain within 2%. At the same time, in EU and in China, the government and corporate debt burden is also increasing, with weak indicators of economic activity, which in the short and medium-term reduces the investment attractiveness of their currencies and assets.
Bitcoin, on the other hand, has limited emissions and fully decentralized governance, so the cryptocurrency is not exposed to the risk of depreciation in its traditional sense.
Unlike the value of public companies, cryptocurrency rates are determined not by profit, but by the balance of supply and demand: the number of tokens in circulation, the issue, and the number of holders. According to these indicators, the current growth of cryptocurrencies is not a bubble, they have fundamental reasons to grow further. The amount of BTC in circulation is about 18 million and changes little over time. Now it is increasing by 1.8% per year, and this value will decrease in the future.
BTC audience is showing excellent growth: the number of users roughly doubles every year. Now it is about 100-150 million.
Bitcoin is perceived as a defensive asset against inflation, and more and more investments are flowing into cryptocurrency. Companies are diversifying their “gold” investment portfolios. Gold has a YTD to a mid-December yield of 23%, while BTC is showing a similar but pronounced trend with a yield of about 248% YTD.
Cryptocurrency is still in a “gray” regulatory area, has no official status, or is banned in many countries. This discourages interested institutional investors from investing in digital assets. However, some regulators are gradually inclined to view bitcoin not as a surrogate for money, but as an investment asset.
The regulatory framework for cryptocurrencies is becoming clearer and clearer every year. It was the lack of elaboration of the legislation that in many ways blocked the path of institutions to the cryptocurrency market. BTC will appear in the portfolios of the largest asset managers, and this will push the rate up, ”the representatives of the Garantex cryptocurrency exchange are sure.
Serious institutional demand for bitcoin from large investors and companies in 2020 has become the main fundamental component of the BTC/USD uptrend.
Over the past couple of years, legal deliverable futures and options have emerged on the market that allows US institutional investors to buy BTC and ETH directly. Last winter and during the fall in March, many big players bought crypto assets and are now interested in their growth. After accepting cryptocurrencies by PayPal, Visa asked a similar question. Perhaps we will soon see bank cards with support for cryptocurrencies.
Institutions can indeed contribute to asset appreciation. One of the factors that influenced the rise in the price of BTC is massive purchases by large investors. They have taken a significant portion of the bitcoin supply from the market. For example, according to a report by the Grayscale Bitcoin Trust, the value of assets under the management of the fund already exceeds $ 10 billion.
Many believe that the pandemic may have significantly affected the Bitcoin rate.
At the end of 2020, we can confidently talk about the inverse relationship between global economic growth and the price dynamics of BTC. The slow recovery of the global economy after the coronavirus pandemic will spur Bitcoin’s growth, while its rapid recovery could weaken the position of the cryptocurrency relative to other financial asset classes.
Macroeconomic instability has helped the cryptocurrency market attract the attention of private and institutional investors. But speaking about the future, it is worth remembering: cryptocurrencies are still poorly distributed, and the faster they attract new investors, the greater the growth of the asset.
According to the head of PayPal payment system Daniel Schulman, Bitcoin can become a classic financial instrument for everyday settlements as early as next year.
It is highly likely that Bitcoin will continue to grow, but do not forget about the risks of a correction. There are two possible scenarios for the BTC price movement for the next year:
Any forecast regarding Bitcoin is reading in tea-leaves.
Citibank predicts BTC will rise to levels over $ 300,000 – and this is not a fantasy, but rather a continuation of long-term patterns. However, it is difficult to predict the exact dynamics of cryptocurrency prices in 2021. It will finally become clear to investors that bitcoin has the potential for growth, it has not turned from a growing asset into a “mature” one, as is usually the case with companies. This will further increase its attractiveness and attract new investors to the market. As 2017 showed, if we do not know the limits of growth, then they can turn out to be very wide. The same is true for BTC behavior above $ 20,000.
Now the media are publishing different opinions of well-known analysts and figures in the field of cryptocurrency. They call the future prices of BTC around $ 100,000, $ 200,000, and higher, which is extremely optimistic in my opinion. Bitcoin may rise to these levels, but only in the long run.
Many investment organizations and analysts are actually predicting Bitcoin highs in 2021.
For example, Weiss Crypto experts consider the movement of Bitcoin to the level of $ 100,000 “more real than ever.” Analysts note that this price is a very conservative forecast.
Stock-to-flow analysts say #Bitcoin's trajectory toward $100,000 is more real than ever. We say $100,000 is a very conservative estimate. However, a word of caution: market looks a bit overbought…
— Weiss Crypto Ratings (@WeissCrypto) December 21, 2020
One of the founders of the Gemini digital asset exchange, Tyler Winklevoss, believes that one or two high-profile news feeds are not enough to move BTC to $ 30,000. In his opinion, news about the purchase of Bitcoin from public companies or central banks can become a catalyst.
#Bitcoin just chilling above 22k. Feels like we are only one or two big announcements from 30k bitcoin before the end of the year. Catalysts could be next publicly traded company or central bank to purchase bitcoin with their balance sheet.
— Tyler Winklevoss (@tyler) December 21, 2020
Analyst Willie Woo is sure that the main growth of bitcoin will be in the next year, and the cryptocurrency itself is still far from local highs.
Typo on first Tweet, should read: “We are NOW at”.
— Willy Woo (@woonomic) December 17, 2020