Friday, July 19, 2024
More

    Bitcoin in 2021: What to expect from the first cryptocurrency?

    Latest Posts

    The year 2020 has been one of the most eventful years for bitcoin, with the coin’s price hitting all-time highs and the world’s largest investors and Wall Street companies buying it as a defensive asset. After such success, the question arises: will bitcoin maintain its uptrend in 2021? We have found out what this year will be for the main cryptocurrency, how much it may be worth, whether mining will remain profitable and what changes await the BTC infrastructure.

    How was 2020 for bitcoin?

    2020 was a triumphant year for bitcoin. It was not only because it started the year at $7200 and finished at $29,125 and a record capitalization of $541 billion. The coin had more impressive years in terms of value growth. But in 2020, the first cryptocurrency proved to be a full-fledged financial asset.

    Bitcoin can no longer be perceived as a fad, a toy of technophiles, a pyramid scheme or an overrated technology. Pyramids and fads don’t last 12 years, nor do investment funds invest in them.

    The year began briskly: bitcoin reached $10,250 already by mid-February. However, in March, against the background of the fall of stock markets because of restrictions caused by lockdowns, investors in BTC panicked – the asset collapsed to $ 4,600. After rebounding from the low, the coin immediately began moving upward, but took its time. By May the exchange rate reached $9,000, and by the end of July it was over $10,000.

    On May 11, the Bitcoin network underwent a planned third halving – a reduction in miners’ reward for a mined block by two. After the previous two halvings, BTC reached its then-record highs due to a reduction in cryptocurrency issuance while demand remained high. The trend repeated again in 2020.

    Until October bitcoin was in the price corridor of $10,000-$12,000, but closer to November the growth began to gain momentum. As a result, by the end of November bitcoin broke through the level of $19,000, and in December after a small correction beat the previous high and exceeded $29,000.

    During the first days of the new year bitcoin continued to break records. On January 3, the coin reached a high of $34,480 and a capitalization of $640 billion.

    011

    Chart of change in the price of bitcoin for the year.

    Institutional investors are the main drivers of growth

    Unlike the crypto rally of 2017, driven by the hype around cryptocurrencies among retail buyers, the current rise in bitcoin is supported by institutional investors. They are actively buying the first cryptocurrency, driving the price up.

    For example, the amount of assets under management of Grayscale Investments, the largest crypto fund whose majority of clients are institutional investors, increased almost 33 times in a year and reached $20 billion. The fund bought almost 70% of the new bitcoins mined after the May halving. Open interest in BTC futures listed on the Chicago Mercantile Exchange CME rose above $1 billion for the first time, up from $120 million in 2019.

    Demand for bitcoin is now higher than its supply. According to Chainalysis, there are currently only 3.4 million VTCs available for purchase on the market. And the number of addresses containing 1,000 BTC or more rose to a four-year high of 2,224 in late October. Meanwhile, most of the newly mined bitcoins are held by whales and institutional investors – making the coin’s supply increasingly scarce. Moreover, retail investors are moving coins from exchanges to their own wallets, showing the market that they intend to move their BTCs (long-term holdings of assets for the prospect of stronger growth).

    In 2020, the price of bitcoin was also driven by large public companies, such as Square, MicroStrategy, and MassMutual, buying bitcoin as a backup asset.

    For institutions and public companies, bitcoin has become a safe haven, the digital equivalent of gold-a protective asset to weather periods of inflation, a falling dollar, quantitative easing, market turmoil, and low interest rates.

    And it appears that institutions are planning to increase their investments in bitcoin, despite minor corrections. The big players don’t want short-term speculation, they are aiming for a multi-year hold on bitcoin. Such demand will undoubtedly push prices further up.

    Fundamental factors for bitcoin growth in 2021

    Bitcoin’s rise in 2020 reminds many of the 2017 cryptoracle. However, this time the situation is different. The current rise is due to fundamental reasons, not to hype. So, while 2017 ended with a severe crypto-zima, now it seems that the best days are yet to come.
    After price highs, traders will be eager to lock in profits. Therefore, the market is waiting for repeated sensitive corrections of 20-30%, but there are many reasons for the bitcoin price not only not to fall too low, but, on the contrary, to continue to grow. Moreover, there are quite a few investors in the market, including institutional investors, who are ready to buy VTC on a fall.

    Among the reasons for the bitcoin price’s continued uptrend are the following:

    • The economic difficulties triggered by the coronavirus pandemic. COVID-19 has affected every economy in the world and the global financial system. When it will all end is still unclear, but it is clear that the world will be recovering from losses caused by lockdowns, unemployment, ruined businesses, inflation and other negative effects of a forced economic shutdown for several more years. According to investment veteran Dan Tapiero, 2021 could be the year of a massive drop in liquidity in the markets. The stock market could experience a severe correction, which would be followed by a rapid rally. One of the beneficiaries of this will be bitcoin.
    • Regulators’ Policy Implications. The COVID-19 pandemic has forced financial regulators around the world to take unprecedented measures: the U.S. Federal Reserve has printed trillions of dollars and central banks have cut interest rates to the floor. On the one hand, these measures provide the market with “free money” that needs to be reinvested somewhere. On the other hand, it forces investors and savers to look for new ways to make a profit. It is likely that such stimulus programs will continue in 2021.
    • Increased acceptance and use of cryptocurrencies. According to the Cambridge Center for Alternative Finance (CCAF), over 101 million people worldwide now use cryptocurrencies. But in the near future, this figure may increase significantly. Thus, from the next year the payment giant PayPal will launch support of crypto-assets, including BTC, among all its clients, the number of which exceeds 360 million. At that, PayPal users are already actively buying up most of the mined bitcoins.
    • Infrastructure development. Bitcoin is completing its transformation into an asset available to any type of financial institution. The infrastructure for this is almost complete. The crypto market already has most institutional services: trading floors, custodial services, bitcoin futures, and the first prime brokers offering the full range of services (trading, lending and storage of crypto assets). Probably, in 2021, we will see similar products appear for retail clients. For example, some banks will launch BTC storage products, most likely relying on one of the well-known service providers, such as Fidelity Digital Assets.

    What to expect from regulators

    Bitcoin, as an asset, cannot be banned. But the entry of institutionalists into the sector has made the cryptocurrency more vulnerable. And if regulators impose a ban on any activities with BTC, the institutions will be forced to obey them. This, in turn, could reverse bitcoin’s uptrend.

    However, so far there is no special prerequisite for tightening the regulation for bitcoin products. The U.S. Securities and Exchange Commission (SEC) has long recognized bitcoin as a decentralized cryptocurrency and has shown no inclination to ban it. There are hopes that the SEC will pursue an even more liberal policy in the new year.

    Thus, on December 23, Jay Clayton, the head of the Commission, left his post. It is believed that he was overly strict on crypto projects. On December 24, Elan Royzman, who is perceived in the crypto market as a supporter of cryptocurrencies and exchange-traded investment funds, became acting head of the SEC.

    Royzman believes that the regulation of cryptocurrencies should be clear and the current rules need to be revised to meet the changed economic realities. There is hope that the new head of the SEC will give the go-ahead to launch a bitcoin exchange-traded fund (bitcoin-ETF). In the past, several SEC members have voiced support for the launch of such a product, but until recently, they have not been outvoted. With the renewal of the agency’s membership, that could all change.

    The market also believes in the possible launch of a bitcoin-ETF. According to a poll by The Block, 51.3% of respondents believe the SEC could approve a bitcoin-ETF as early as 2021. Recall that the SEC has rejected any proposal to launch a bitcoin exchange-traded fund for several years in a row, arguing that there are risks of market manipulation.

    How much will bitcoin be worth in 2021

    It is quite rare that most analysts agree that bitcoin has an uptrend ahead. However, for 2021, many of them have an optimistic view.

    Collected a few bitcoin price predictions for the rest of next year:

    • $34,500-$46,000 – Nigel Green, founder and CEO of the DeVere Group;
    • $36,000 – analysts at cryptocurrency exchange Kraken;
    • $40,000 – cryptoblogger Ivan Liljekvist (Ivan on Tech);
    • $50,000 – Michael McGlone, a Bloomberg analyst;
    • $54,000 – Garrick Hileman, head of research at Blockchain.com. At this price, bitcoin’s capitalization would be about a trillion dollars;
    • $65,000 – Michael Novogratz, crypto investor and founder of cryptocurrency bank Galaxy Digital;
    • $50,000-$100,000 – Zach Prince, CEO of cryptocurrency lending firm BlockFi;
    • $100,000- Anthony Pompliano, co-founder of Morgan Creek Digital;
    • $100,000-$288,000 – PlanB, a popular anonymous crypto analyst;
    • $318,000 – Tom Fitzpatrick, a Citibank analyst.

    It looks optimistic. But all predictions are relative and only extrapolate past trends into the future. Find any article with past bitcoin price predictions and compare it to reality – unfortunately, analysts rarely guess. Not because they are stupid, but because it is impossible to calculate all the variables. You can only partially predict the trend, but no more than that. Therefore, when deciding to invest in bitcoin, remember that at any moment its price can go in the opposite direction.

    There is a downside to being overly optimistic. Betting on bitcoin at $100,000 or more next year would be betting on the collapse of the global financial system. We don’t think many people would want those predictions to come true.

    My prediction is a moderate one – no more than $30,000-$40,000 by the end of 2021. We’ll check back at the end of December!
    Almost none of the experts expect bitcoin to fall significantly. According to analysts at Bloomberg, the support level (the minimum possible price) will be $10,000, and according to analyst Mike McGlone, this figure may rise to $20,000. However, the well-known economist Nouriel Roubini, who predicted the crisis in 2008, believes that bitcoin remains a bubble and may burst soon. It should be noted that Roubini has been predicting the first cryptocurrency’s collapse for 12 years now.

    Although experts do not expect bitcoin to fall heavily, investors should be prepared for a price correction of 10-30% or even more.

    022

    The BitcoinCritics account, which tracks the price of bitcoin, compared the coin’s value at Christmas over the past 11 years.

    Bitcoin mining in 2021

    The rise in the price of VTCs in 2020 ensured profits even for miners with outdated equipment. And the fall in the ruble has benefited industrial miners in Russia – they pay their expenses in local currency and sell bitcoins for dollars.

    Halving – a decrease in the reward per block – did not significantly affect miners’ income and was soon compensated by an increase in commissions: from $0.4-$0.6 in April to $6-$13 in October and December.

    033

    Growth in total miners’ income in 2020

    If bitcoin maintains its uptrend next year, there is no need to worry about profitability of miners and farm payback. At these prices, even with old equipment, such as Antminer S9, Bitfury B8 and Bitmain S9, it will be possible to work in profit in the medium term up to a year or two (enough time to update all the software). Even power of devices of recent generations S17 or S19 (Antminer S19 Pro, S19 and T19) from 75 TH/s will be enough till the next halving.

    Miners are well aware that in 2021 they can earn good money – there is a rush on the market for purchasing of the latest generation mining equipment. Public companies are also looking at mining. Another indicator of a good year for the industry is the rise in share prices of publicly traded mining companies.

    044

    Bitcoin network hash rate graph in 2020. It increased by 40% to 136 EH/s over the year. The higher the hash rate, the more mining capacity is connected to the network. The jumps in the graph show when miners connected or disconnected equipment.

    But despite the rise in the price of bitcoin, the time of home mining is over. Now it is a full-fledged business or a medium-term investment with a payback period of 2-3 years. You also need a margin of safety in case of sharp corrections, which can turn into the need to mine at a loss, and the depreciation of equipment until the next generation.

    To conclude

    No one knows how this year will go and what surprises it has in store for us. But for now, at the very beginning of 2021, there is confidence that bitcoin will still please its investors.

    CEO and Founder of Crypto Consulting,
    Decentralized technology expert– Kotov Dmitry

    Latest Posts

    Don't Miss