The cryptocurrency market just had an exceptional year, which was only equaled by the 2017 ICO-craze. The market cap more than quadrupled over the last 12 months, surpassing the $1 trillion mark at one point.
Moreover, Bitcoin ended 2020 with a bang, climbing past its all-time-high and reaching $42.000 in less than one month. And despite the fact that BTC seems to have slowed down, its strong fundamentals are promising us even more exciting price action in the near future.
This gives us a good reason to provide you with an in-depth bitcoin price prediction and try to lay out what might follow. To accomplish this, we explain some of the main advantages of bitcoin and the factors that might influence its price.
Additionally, we explore some recent macroeconomic developments that might push investors to favor bitcoin over traditional assets.
After a comprehensive review of 2020, we will reveal our bitcoin price predictions for the short, mid, and long term timeframes. Let’s begin.
Why is Bitcoin essential to the financial world?
Bitcoin was created in 2008, to provide an answer to the financial crisis that was triggered by the collapse of the real estate market. Its creator, Satoshi Nakamoto, wanted to offer the world a trustless digital cash system, independent from third parties.
Mainly, it wanted to prevent two glaring shortcomings of our current monetary system:
Its centralization - Which makes it dependent on banks and government institutions, giving them unlimited control over our finances.
Money loses value over time - Governments can issue currencies whenever they find it necessary, which dilutes the value of the money in circulation.
So instead of relying on a single centralized entity, Bitcoin relies on blockchain technology. This immutable and distributed ledger records all of the transactions on the network in a decentralized manner.
Millions of computers hold an exact copy of this ledger and anyone can access this data at any time. This transparency eliminates the issue of trust, empowering users to exchange value directly with each other.
Furthermore, new coins are minted by a mathematical process called mining, which follows a predetermined set of rules. The total amount of bitcoin is also limited to 21 million coins, which increases its scarcity over time, and therefore, its value.
While seemingly simple on the surface, these properties bring numerous advantages to bitcoin users, both as a currency and a store of value.
Bitcoin main benefits and drawbacks
First, let’s go over some of bitcoin’s advantages that might help you understand our bitcoin price prediction even better.
Deflationary currency - the limited number of coins automatically makes bitcoin resistant to inflation. In addition, a mechanism in the bitcoin mining protocol halves the rewards from the mining process every 4 years. This decreases the number of coins put into circulation over time even further.
Powerful store of value - thanks to its digital form, bitcoin is much more efficient than traditional store-of-value assets such as gold, for example. It’s easier to store and transfer, two properties that proved to be invaluable during the COVID19 lockdowns.
Resistant to censorship - the decentralized nature allows bitcoin users to send unlimited amounts of value over the blockchain, without having to request permission from anyone.
Accessible globally - contrary to traditional currencies, bitcoin is available to anyone with internet access. Therefore, people with limited access to financial services get to use a quickly appreciating asset and participate in the growing internet economy.
True ownership - another product of the decentralized nature of bitcoin, only the user in possession of the private key can access their holdings.
Naysayers have expressed some criticisms over the years, which could raise some concerns with potential investors.
Volatility - if we take a look at the short term price action of bitcoin, we can see that it is often subject to extreme price fluctuations. This unpredictability can be a potential turn-off for investors looking for a more stable asset.
No intrinsic value - some less tech-savvy investors think that bitcoin has no value due to its impalpable digital nature. However, as more people understand the technology behind it, the belief in bitcoin’s fundamental value should increase.
User protection - the financial freedom bitcoin brings comes with its set of responsibilities. There’s no third party to rely upon and once confirmed, all transactions are irreversible. Once a bitcoin is gone from a wallet, there’s no way to recover it.
Scalability - with more people using the network, transaction confirmations become slower. As a result, users become reluctant to use bitcoin as a currency for daily purchases.
Main factors influencing Bitcoin’s price
Before we dig deeper into our bitcoin price prediction, it’s essential to understand the essential factors that contribute to bitcoin’s change in value.
The law of supply and demand
One of the most basic economic laws states that when supply is reduced and demand increases, the price of an asset goes up (and vice versa). In the case of bitcoin, supply is impacted by:
the capped total supply of 21 million coins.
the halving mechanism which renders new coins increasingly more difficult to mine.
As time goes by and the demand for bitcoin increases due to adoption, the price should inevitably increase.
Cost of production
While bitcoins might be digital, their creation requires a tangible resource - electricity. The bitcoin mining algorithm automatically increases in difficulty as more miners join the network.
In turn, solving the mining algorithm becomes more power-consuming, effectively increasing bitcoin’s production costs. And with it, the price at which miners are willing to sell it.
Cryptocurrencies are fairly recent assets, and governments are still debating how to regulate them. Some countries have welcomed bitcoin while others have tried to outright ban its usage or impose rules that make it almost impossible to use legally.
As a result, BTC’s price can fluctuate whenever there is an official statement regarding digital currency regulation, especially in highly developed countries.
Media coverage and hype
Our opinions are often forged through the media that we are being presented, whether we like it or not. Positive media coverage causes what is knowns as the hype cycle, proper to emerging technologies such as blockchain.
Additionally, media gives people a better understanding of the basics behind bitcoin, leading to even more people being attracted by the idea, increasing demand. On the flip side, negative media coverage can cause FUD (fear, uncertainty, and doubt), driving prices down.
Bitcoin historical price analysis
As markets usually work in cycles, a necessary step in understanding our bitcoin price prediction is to analyze the historical price action of BTC. Below is a summary of the last 4 years of the bitcoin market.
To simplify, we can divide the bitcoin market into a number of different cycles in this period:
2016-2018 Bull market - After the 2nd bitcoin halving in May 2016, the market entered bullish momentum which continued into 2017. This positive price movement was amplified even further in the second half of 2017 with the proliferation of ICOs and the notorious crypto bubble that burst by the end of that year. At its peak, bitcoin’s price had reached $20.000 and grew 4000% in under 12 months.
2018 Bear market - the return to reality was harsh for many investors. Throughout 2018, bitcoin’s value decreased by 85%, reaching as low as $3.000.
2019 Market recovery and new cycle - the next cycle was fairly positive for bitcoin, as prices recovered from $3.000 to $13.000 by the middle of the summer of 2019. However, this recovery was short-lived and BTC declined by 50%, reaching $6.500 by the end of December 2019.
2020 bull market - for many, the bull market had begun as early as January 2020. The year started with a price rally towards the $10.000 mark and things were looking good. However, prices crashed in March, following the breakout of the coronavirus pandemic. Prices began recovering immediately and entered the bull run we are currently experiencing, increasing by 900% in 10 months.
Bitcoin in 2020 - a year in review
2020 was quite an eventful year for bitcoin, which warrants some detailed analysis on its own.
The beginning of the bull run in January 2020
Bitcoin’s price was going through a difficult 6-month period, after peaking at $13.000 in mid-2019. As 2020 started, we finally saw some positive market action.
After a 45% price increase from January to February 2020, many believed that the long-awaited bull run was finally upon us. Bitcoin had entered a healthy trend, reaching a psychological resistance of $10.000, and was getting ready to race past it. However, the COVID19 pandemic was right behind the corner.
Covid19 crash and recovery
In March 2020, bitcoin following every other asset on the planet and crashed, registering 60% losses that week.
But unlike the stock market, bitcoin’s recovery started as soon as it hit the $3.900 bottom. By early May, prices were already reaching pre-crash levels. Then, during the first half of the summer, bitcoin traded sideways, its value fluctuating between $8.500 and $10.000.
The DeFi Bubble of summer 2020
Due to the rise in popularity of decentralized finance projects, the market experienced a 30% price spike, with prices reaching a yearly high of $12.000. Once the DeFi hype had waned, the move was followed by a sharp 20% decline.
However, bitcoin was still showing strong technicals, managing to keep at pre-bubble price levels, conserving the $10.000 level as strong support.
Autumn 2020 - the bull run picks up speed
Once the dust had settled after the DeFi debacle, bitcoin’s price picked up some new momentum. During the 3 months that followed, the cryptocurrency’s price doubled, reaching all-time-high levels of $20.000 by mid-December 2020.
An important event in October 2020 that might have contributed to bitcoin’s price rally - PayPal’s announcement to include bitcoin, together with some other top cryptos, in their digital wallet.
Breaking of ATH - BTC goes parabolic
After testing the ATH resistance at $20.000 a couple of times, the candles finally broke upwards from this level on the 15th of December.
What followed was an incredible rally towards a new ATH of $42.000, which was reached during the first week of January 2021. During this period, bitcoin registered a new record for itself, gaining more than 25% in one week.
One contributing factor to bitcoin’s sudden price surge might be the May 2020 reward halving which is usually priced in 6-12 months after the event.
Since the peak, price action seems to have cooled down a bit. The candles have retraced to lower $30.000 levels, breaking support at $34.000 and settling in the $30.000-$32.000 zone.
Bitcoin price prediction
The cryptocurrency market has matured quite a bit since the 2017 price rally. Today, almost everyone has at least heard about bitcoin and blockchain projects are finally seeing some practical usage.
Below are just some of the key metrics that support our bitcoin price prediction and show you how different this 2021 bull run may be from the previous one.
Institutional money injected in BTC
The cryptocurrency market had always been driven by retail investors, with institutions and professionals lagging behind. However, the data seems to be telling us that this trend is slowly changing.
A shining example of high-profile bitcoin investors is Michael Saylor’s MicroStrategy. In 2020, the company has acquired more than 70.000 bitcoins, pushing the value of their BTC portfolio to an astonishing $2.2 billion.
This trend seems to be confirmed, with Grayscale reporting more than $20 billion in bitcoin assets under management, an increase of 1000% in 2020 alone.