The COVID-19 pandemic kicked off a rally in the crypto-markets. What does the future hold in 2021 for Bitcoin and the other currencies?
Difference Between 2017 and Now
By mid-December 2017, a single Bitcoin was worth nearly $20,000. In the months that followed, the value plummeted. By the end of 2018, a Bitcoin was worth less than $3,000 — an 85% drop in value. Nevertheless, the record-breaking asset value of the alternative currency made the market particularly interesting for speculation and created incentives for developing more cryptocurrencies and conducting new issues of crypto units. — Is There Still Some Potential Left in Cryptocurrencies?, Maximilian Perkmann
The situation around Bitcoin and Co. is different in many aspects this year. Institutional interest is significantly higher than in 2017, while demand from speculative private investors is significantly lower. This explains the comparatively manageable price rises, but also the price distortions. In addition, no bad news has been published, and thus no major price fluctuations have taken place. In 2017, messages about successful hacker attacks on crypto exchanges, and threatening statements about regulation on cryptos triggered larger sales. Investors are much more relaxed about negative headlines.
The mentioned factors indicate an exceptional relative strength, which is definitely also included in the price.
In addition to the much more stable situation, more and more companies are considering the implementation of digital currencies, such as the payment service provider Paypal. At the same time, the central banks “Fed” and “ECB” are discussing the introduction of their own e-currency. From a technical as well as a fundamental perspective, the conditions remain positive. In the short term, setbacks could happen at any time. Over the long term, however, I personally expect the rally to continue.
The fact that Paypal wants to gain a foothold in the crypto industry is a huge honor. Paypal customers will be able to use selected currencies such as Bitcoin, Ether, Bitcoin Cash, or Litecoin on the platform. For the industry, this news proves to be an absolute stroke of luck. With the Corona pandemic, states and companies continue to feel compelled to rethink digital payments. Paypal’s entry into the crypto business could also have a signaling effect for other companies that have been thinking about the implementation of digital currencies for some time. They could now feel encouraged to follow similar paths. Paypal’s entry into the digital money business can already be seen as the highlight of the year.
Outlook in the Price Development
No forecast seems too high for Bitcoin at the moment. Price estimations of 100,000 to 318,000 dollars are in circulation until the end of 2021. What are these estimates based on?
To a large extent, these targets are based on the fact that Bitcoin will increasingly be seen as a value-asset in the coming months and years. Especially with the expansive monetary policy of the US Federal Reserve in mind and the consideration that it is equivalent to or more efficient than the precious metal gold. The price development was accelerated by the coronavirus pandemic.
Another important factor: Bitcoin halving. The supply quantity was artificially reduced. This ensures a supply shortage in the medium and long term. While the development of the money supply has been adjusted and reduced, central banks are increasing their holdings.
Personally, I consider such high price targets to be less serious and, above all, misleading. Less experienced investors could thus get the feeling of a “safe bet”, which does not correspond to the facts. On the contrary: Bitcoin and Co. are and remain not suitable for everyone. I prefer to refer to the downsides and risks in this context.
Is The Next Bitcoin Bubble About To Burst?
Coming back to the title’s question: this risk definitely exists. However, this scenario is less likely because cryptocurrencies have become much more mature and have already arrived on Wall Street. Numerous well-known companies are trying to expand their product range and are taking up Bitcoin, Ether, and Co. This is leading to institutional investors, in particular, taking notice of bitcoin and respecting it more than they did in 2017. Bursting of a bubble as three years ago remains possible, but less likely.
Google Trends and newspaper are proving: Bitcoin is not in the same hype as in 2017.
Cryptocurrencies have increasingly come into the focus of institutions. In fact, there is no hype as in 2017, which is extremely positive for the price, as there are fewer speculative investors in the market, but more long-term oriented and convinced market participants.
The industry is alive and the development remains highly dynamic. In my opinion, it will only be a matter of time before the underlying blockchain technology reaches everyday life. There are already numerous use cases. Especially the area of microtransactions could become interesting in the next few years. The current coronavirus pandemic is likely to further accelerate the already existing digital transformation. If such applications become part of everyday life for the average consumer, they will also receive greater attention.
The Ethereum 2.0 update continues to be a much-discussed topic in the community. Ethereum 2.0 is possibly the most ambitious project to date that the team around co-founder Vitalik Buterin has started. In the long term, the Ethereum blockchain should significantly improve its transaction volume. In the future, it should be possible to process several thousand transactions per second.
In general, Ether also benefits from a bitcoin boom. If bitcoin rises, other currencies also tend to rise.
In the current situation, Bitcoin and cryptocurrencies in general (especially the top 10) prove to be much more stable than they were in 2017. As more and more companies and institutions engage with coins, I personally see a positive future for digital currencies. Nonetheless, cryptocurrencies remain a highly volatile and risky asset — with many downsides still to face.
Read also “Is There Still Some Potential Left in Cryptocurrencies?” (Medium, Maximilian Perkmann, Coinmonks) for more use-cases and the still existing potential in cryptocurrencies.