Bitcoins Climb To $100k
At the writing of this story, Bitcoin is trading at $40,194.40. 12 months ago, Bitcoin was trading at $9,763.01. This represents a 312% increase over the same period.
In this story, I explore the primary drivers for this absolutely mental run-up in bitcoin prices and why the path to $100,000 bitcoin in 2021 is feasible.
What were the triggering events for this price increase?
There is a positive correlation between the global pandemic and when the price of bitcoin started increasing rapidly. Once the global pandemic released its fury on society and federal governments all across the globe started printing money to combat its ill-effects on local economies, the price of bitcoin started increasing.
The increase in money supply has triggered inflationary fears. Lots of traders and investors view bitcoin as an inflationary hedge. This is because there is a finite number of bitcoin, 21 million to be exact. Further every 4 years, there is an event called “the halvening” event which basically reduces the amount of bitcoin that “miners” are awarded, thus reducing its supply.
A different event that triggered a rise in the price of bitcoin is actually a series of events. In 2020, the amount of distrust in governments and general practices increased resulting in protests for various causes. I am not going to list out all of the protest events of 2020 as I am staying clear of politics and social causes in this story and will only include representative hashtags to convey the point (#metoo, #blm, #antimasker, #opentheeconomy, #stimuluschecks #shutdown, #bluelivesmatter.)
This distrust has investors evaluating other means of obtaining financial safety that is free of governmental influences. A decentralized financial model, which is the core of cryptocurrencies, is the financial vehicle that lots of investors have selected which in turn is further driving demand and increasing prices.
A third event is the perceived unfairness between institutional and retail investors that occurred in the financial markets during the week of January 25, 2021.
When retail investors were disallowed from buying select stocks like GameStop and AMC in quantities they desire, it has exposed a host of issues in the financial markets. This has fueled the fire on the basic theme that there must be a better way and has pushed new investors to start considering the cryptocurrency market which is perceived as being more efficient than the existing financial framework.
A fourth event that fueled the rise of cryptocurrency prices and benefited bitcoin, which has assumed the role of cryptocurrency spokesperson, is the increased adoption of bitcoin.
Several payment providers such as Square and PayPal have allowed the buying and consumption of cryptocurrencies on their platforms. Hedge funds have publicly spoken about acquiring more Bitcoin. Select companies have spoken about putting a small amount of bitcoin on their balance sheets.
Adoption was the biggest issue in years past and resulted in frequent bitcoin crashes. The increased adoption is driving more legitimacy in cryptocurrencies and has influenced the rising prices.
A fifth event is the voice of celebrities and well-known personalities on the topic. Names such as Elon Musk, Bill Gates, Snoop Dogg, and Ashton Kutcher have all spoken favorably, if not publicly endorsed, bitcoin.
These voices with their legions of followers have further driven up the interest level and demand for bitcoin.
Then there’s the FOMO (Fear OF Missing Out) component which is a force in itself. Not having any exposure to the cryptocurrency market is being viewed as a mistake or potentially even a lapse in judgment.
The run-up in prices has created a perception of easy and “risk-free” money, a perception that I don’t condone due to the inherent amount of volatility in this speculative asset class. With that said, almost every month bitcoin seems to achieve new highs.
As outlined above, it continues to get easier every day to buy bitcoin through platforms such as PayPal, Square, or a Bitcoin Trust such as the one offered by Grayscale. This simplicity has further boosted adoption and the price of bitcoin.
It’s also not just the individual investor. Hedge funds are rewarded on investment performance. Even if they don’t believe in the asset class, not having it in their portfolio will almost certainly be viewed as an error in judgment from the investor whose funds these hedge funds manage. This further propagates the FOMO notion and continued increase in bitcoin prices.
Is the path to $100,000 bitcoin by end of 2021 feasible?
On January 1, 2021, one bitcoin was worth $29,388.30. Therefore, Bitcoin has gone up almost 37% in slightly over a month. Now, I fully understand that past performance is not an indicator of future performance but at the current growth rate, Bitcoin could breach $100,000 in just over 3 months.
Several financial pundits have viewed $40,000 as a resistance level from a technical analysis perspective for bitcoin. This is just a fancy way of saying that at certain levels, $40,000 in this case, investors start locking in gains thus creating a resistance level reducing the pace of price increases for asset classes.
At the writing of this story, this resistance level has been breached and the new resistance number that is being discussed is $63,000 per Bitcoin.
For asset classes such as this, it’s difficult to assess a normal growth rate, but even if you were to consider a more “normalized” growth rate for bitcoin of 10% monthly, breaching $100,000 by December 2021 is still likely.
Based on the analytics provided by chainalysis.com, the demand for bitcoin continues to increase. As long as the demand is there and the supply is limited, there is only one direction for the price to go and that is up.
Besides the growth rate and the increased demand, Treasury Secretary Janet Yellen has also spoken about the need for cryptocurrency regulation. Bitcoin traders view this as a positive since regulation drives legitimacy and legitimacy drives adoption and adoption drives an increase in prices.
What could derail the growth of bitcoin?
The question becomes what could potentially erode bitcoin's meteoric rise. The obvious answer to this is if there is an error noted in the blockchain code block it could certainly result in a substantial correction. But with the amount of computing power that is being used by miners to verify transactions thus resulting in the continuing expansion of blockchain and the seemingly endless nodes and validation processes, a catastrophic code issue is unlikely.
The other way for a price drop is if there is a sudden crash in demand similar to what happened with the “tulip mania” in the 1600s. While it certainly is possible, we would also be trying to predict black swan events which are inherently problematic. After all, if black swan events were predictable, wouldn’t they just be a white swan or regular swan events.
Perhaps a lesson can be garnered from the recent speculation that took place with GameStop (GME) stock which also had a meteoric rise only to come crashing back to earth abruptly. Eventually, all that matters is how much are people willing to pay for an asset based on its underlying fundamentals. At a certain point, it may become cost prohibitive and those that are in the cryptocurrency asset may decide to lock in their gains and sell.
However, when could that happen as Bitcoin is more nuanced. Bitcoin's price is based on supply and demand. There aren’t any other proven “fundamentals” since bitcoin does not produce anything. As stated above the demand for cryptocurrencies is accelerating. When it comes to measuring adoption, the S-curve is commonly used to understand where in the lifecycle technology is relative to adoption.
The S-curve is based on the underlying premise that the amount of time it takes for new technology to go from 0% to 10% adoption is roughly the same as the amount of time it takes to go from 10% to 90% adoption. Based on the number of digital asset holders, cryptocurrencies are usually plotted in the very early stages of adoption. This could be indicative that we are not close to reaching price levels where this could be an issue.
What does this all mean?
Well, without there being any compelling headwinds, it would appear that all systems are “go” for bitcoin to have a very productive 2021.
Based on the current growth trajectory, achieving $100,000+ bitcoin seems very feasible. It will certainly be a bumpy ride marked with growth spurts and pullbacks as is with any early-stage technology play with the overarching trend line from a pricing standpoint being upward and to the right.
Disclaimer: Bitcoin and other cryptocurrencies have extreme volatility and investors should always consider their own facts and circumstances in determining their investment thesis and are solely responsible for gains or losses on their investments. This story reflects my opinion and is not intended to be considered financial advice.
