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Is Bitcoin About to Rally? End of 2020 Price Predictions
Over the past month, Bitcoin’s price has skyrocketed from roughly $9k US per token to over $18k US per token (up until the end of the article, all financial figures will be in US dollars). In this article, we will go through some of Bitcoin’s historical price trends, various high profile predictions for the end of 2020, the reasoning behind some of those predictions, and — most importantly — the implications behind those reasons. If you’re not yet a believer in the value of Bitcoin, this article may change your mind. And even if you do believe in Bitcoin, the digital currency’s enormous potential may surprise you.
One cautionary word to heady investors looking to make a profit — you must do your own research. The analysis presented in this article is not intended as professional investment advice, and it should not be approached as such. Instead, this article is intended to educate and inform investors. It does so by introducing the readers to the exciting world of Bitcoin price predictions, and elucidating some of the reasons behind those predictions.
To understand any Bitcoin price prediction, it’s important to put Bitcoin’s current price in perspective. To provide some context for Bitcoin’s recent surge, on December 17, 2017, its price peaked at $19k following an astronomical assent from less than one penny only seven years earlier. This peak capped off an incredible year for Bitcoin where it rose to $19k in December from $800 in January, an increase of 2,375%. However, just five days later on December 22, 2017, Bitcoin experienced a massive crash, dropping to under $14k, including a 24-hour period where its price lost ⅓ of its value. By the following December in 2018, Bitcoin had dipped to just above $3k, with a 76% decrease in value. Since then, Bitcoin’s price has steadily rebounded, with current prices reaching levels not seen in three years — since 2017.
The 2017 price increase yielded the kind of returns investors can only dream of, and yet, Bitcoin’s volatility — highlighted by a dramatic decrease in value in 2018 — has kept many major players out of the market. Bitcoin’s volatility index (the accepted metric for measuring an asset’s volatility) is consistently near 3%, and often reaches as high as 6% or 7%. Such wild swings in value are not for the faint-hearted ones, and those looking for a safe investment with low risk should probably look elsewhere. Wait, should they? This article is not intended as an investment advice, but below we will go through some price predictions for Bitcoin’s future, as well as the underlying value of the asset itself. We’ll explain what makes Bitcoin an attractive asset for many investors, and why growth of roughly 6000% by the end of 2020 is not out of the realm of possibility.
A variety of sources, some more reliable than others, have touted Bitcoin’s current rise as a sign of good things to come. However, the reasons behind those predictions vary widely. In addition, many in the crypto community consider it sort of a “bad omen” when institutional financial outlets herald a coming Bitcoin bull market. In any event, the overall tenor of all of the following predictions is overwhelmingly positive, so there’s no time like the present to buy up some BTC.
Let’s get our feet wet with some exciting predictions. In late October of this year, Bloomberg Research predicted that Bitcoin will reach $20k by January 2021. But it would not be surprising if Bloomberg adjusted that prediction a bit higher considering Bitcoin’s current rally to nearly $18k. Max Keiser, who hosts the financial show “The Keiser Report” predicts that Bitcoin’s price will reach $100k before the end of 2020. This prediction is extremely bold, as it calls for a 500% increase in less than two months. However, as a noted crypto Youtuber Carl Eric Martin (“The Moon”) recently pointed out, if Bitcoin’s price trend follows the trend after 2016’s Bitcoin halving (more on this later), then the price would reach over $318k by October 2021. This would put Keiser’s prediction firmly in the realm of plausible short term outcomes.
Clem Chambers of intelligent investing offered a somewhat more balanced prediction in Forbes magazine, claiming that Bitcoin should reach roughly $30k at year’s end. Clem admits that his prediction is meant to be more of a rough guide to Bitcoin’s trajectory than an absolute prediction, but even if the rate of Bitcoin’s current price increase slows down, $30k is more than possible.
The site allforecast.com is in the minority in predicting a bearish trend for Bitcoin in the short term. All Forecast predicts that Bitcoin may dip to a minimum price of just above $12k. While the site uses artificial intelligence to chart and predict the trajectory of Bitcoin prices, it is worth noting that most experts are firmly in the camp of a bullish Bitcoin trend in the short term future, i.e. by the end of 2020.
All of these analysts have different reasons for their predictions. It thus makes sense to consider that each prediction yields a different price per Bitcoin token. But the reasons behind these predictions are incredibly important for any diligent investor that wants to know whether they can trust the experts. Even though these analysts are professional, if you as an investor disagree with the logical and analytical steps taken by them, then you likely should not follow their advice. The most successful investors are those who lead the pack. Those who follow inevitably get left behind. Below, we’ll dive into the reasoning behind one analyst’s vague prediction, and use it as a springboard to discuss the primary source of Bitcoin’s value.
CNBC panelist Brian Kelly offered a vague but hopeful prediction that “there could be five more months here of pretty good upside”. Kelly based his prediction on the history of Bitcoin price trends after a halving. For context, a halving is when Bitcoin miners’ reward for their efforts is halved. Halvings occur roughly every four years. The most recent halving occurred at around 3pm on May 11, 2020, and decreased miners’ rewards from 25 BTC to 12 ½ BTC. Kelly’s claim is that for the twelve months after the halving, Bitcoin makes a bull run.
However, Kelly’s reasoning is lazy. While it may be true that Bitcoin’s price increases in the year after the halving, there are many factors impacting the current crypto market more than this halving. For example, the worldwide COVID-19 pandemic, the US election, the vaccine announcement, and other world news seem to be playing into the crypto market, and Bitcoin’s price in particular. Emphasizing only the May 2020 halving ignores a host of factors that are at least partially responsible for Bitcoin’s current upward trend. Although, Kelly’s reference to Bitcoin’s halving does allude to the primary source of Bitcoin’s inherent worth — he highlights that Bitcoin still is a store of value.
Since the dawn of time, mankind has used precious metals like gold and silver to drive the economy. Ancient civilizations did not use precious metals just because of their inherent value. Surely, they did not use them because gold and silver can serve some useful function. In fact, lugging around heavy metals is absolutely inconvenient — imagine filling up a wagon of gold coins and wheeling them over to the car dealer to buy a new car!
Why did ancient civilizations use gold and silver then? The answer is surprisingly simple: precious metals are rare and not easily imitated.
These characteristics are intrinsic to any functional currency. In modern times, precious metals have been phased out due to their inconvenience: they have been replaced by paper. However, by moving to paper currencies, the world economy has opened itself up to the dangers of centralization. Institutions like state governments are required to maintain the currency by putting paper money into circulation, replenishing money that goes out of circulation, etc. At the same time, this sort of centralization breeds irresponsible and short term financial decisions and causes inflation. Thanks to this decrease in money purchasing power, many currencies have seen a dramatic downfall (remember the Venezeulan Bolivar case?).
Because of the inflation-related dangers, many institutional investors turn at least some of their money in precious metals like gold and silver. While paper currencies subject to inflation constantly depreciate in value, precious metals “store” this value, or maintain it, due to their rarity. Our apologies for the background of the widespread financial instruments, but here is the fun part: many belonging to the mainstream are just beginning to realize Bitcoin is the new gold.
Among the proponents of this theory, there is one anonymous Twitter user, PlanB (@100trillionUSD). Wondering why anybody cares what some random Twitter handle thinks of Bitcoin’s future? But PlanB is the creator of the Stock-to-Flow pricing model. This person also claims to be a Dutch institutional investor who manages over $100 billion (take a look at the ‘B’) of assets. Moreover, PlanB has also historically been one of the most accurate prognosticators of Bitcoin’s price trends. On November 8, 2020 PlanB tweeted he “has no doubt whatsoever” that Bitcoin will reach at least $100k per token by December 2021. The user also claimed that Bitcoin’s price may reach as high as $288k. This would entail about a 6000% percent increase from the price at the time of this writing ($17,700).
The intricacies and mathematics behind PlanB’s Stock-to-Flow pricing model are beyond the scope of this article. However, the most interesting aspect of the Dutchman’s model is the idea behind it. According to it, Bitcoin should be viewed as a “store-of-value” token similar to gold and silver.
Bitcoin is “more rare” than gold in the sense that nobody can “discover” any new Bitcoin. Instead, the number of coins put in circulation is released according to a rigid schedule. This precludes any possibility of inflation, as no greedy, short-sighted bureaucrat has any control over the supply of Bitcoin. Actually, the maximum supply of Bitcoin has already been determined.
The implications of this theory are incredibly exciting for anybody looking to invest in Bitcoin. As things stand now, Bitcoin’s price is astronomically high, at over $18k. However, Bitcoin’s overall market cap (over $315 billion) is still just 1/30 of the market cap of gold. If Bitcoin truly is the next gold, then there is no legitimate reason that it should not reach and even eclipse the gold market cap. All of this is not to say that Bitcoin will dramatically increase just in a couple of days. Still, there is a strong argument to be made that the recent pandemic has driven home the precariousness of the global and interconnected financial economy, opening the eyes of many to the true value of Bitcoin.
If you’ve gotten this far, you’re likely not sure what to make of the various Bitcoin price predictions. Well, here is a short summary of the main points.
Many have pointed to the rising uncertainty brought on by COVID-19 and the US election to explain the price increase, but if these are the reasons, then Bitcoin might be poised for a crash when the financial and political worlds stabilize. Others have pinned Bitcoin’s success on its recent halving. Again, if that is the reason for the price increase, Bitcoin is poised for a crash — or at least a rapid deterioration in the rate of its increase — once the bump from the halving subsides (likely in the next few months). However, if Bitcoin’s price is rising because the recent financial crisis brought on by the COVID-19 pandemic has opened the world’s eyes to Bitcoin as a store of value, — then now is the time to invest and hang on for the ride to $500k per token.
Think hard about Bitcoin’s future and do your own research, because the answers you find may lead to millions.