This year has been a wild ride for anyone who has invested in the bitcoin market or even just watched it. The most valuable virtual currency in the world traded at over $ 23,000 in December.
When the US first started fighting Covid-19 in early March, Bitcoin was below $ 4,000. For owners or sellers, this is a tortuous source of profit and loss. For those (like me) on the sidelines, this is an entertaining market show with hints of jealousy and dizziness.
Despite this huge swings in bitcoin prices - generally in an upward direction - 2020 was also a year of relative maturity for a currency that, after all, has only been trading for ten years. From my position as editor of the FIN financial technology newsletter, here are what I consider to be the most important Bitcoin trends in 2021:
1. Wider acceptance
The use of Bitcoin in everyday life has always been associated with the chicken egg problem: very few use or accept it because ... firstly, very few use or accept it.
In 2021, we are likely to see an expansion of this mainstream. Find at least one major US or European bank that announces some kind of system where they either allow Bitcoin purchases or agree to hold digital assets for their customers.
2. Competition from large technologies
Regardless of what bitcoin may or may not have achieved in its decade of existence, it has caused many large global organizations to consider offering an international digital currency.
Every company in the payments space understands not only that the digital payments market is still open, but that payments involving various foreign exchange markets have the greatest potential. This is because at present such transactions can take days to resolve and often involve huge fees.
Bitcoin has demonstrated, albeit in its infancy, that a global digital currency can greatly simplify this process. This year, both Facebook and Google - companies with huge global reach that bitcoin can only dream of - have moved forward with big plans for the digital currency.
3. Competition from central banks
This year, the Bank for International Settlements published a report and survey according to which 80% of the world's central banks operate with some form of digital currency.
China has pushed digital currency experimentation much further than any other country. Recently, a lottery was held in the eastern Chinese city of Suzhou, west of Shanghai, in which each of the 100,000 residents received 200 yuan (about $ 30) through a digital wallet. They were asked to link their digital money to their bank accounts, and if they haven't spent their digital money in a few weeks, they disappeared - both great methods to push the experiment forward.
As China moves towards a nationwide adoption of the digital yuan, this is likely to erode demand for bitcoins and other independent cryptocurrencies. Next year, similar experiments may appear in other countries.
4. New rules of the game.
The administration of President-elect Joe Biden will have higher priorities in the first 90 days than regulating cryptocurrency, and it is certainly difficult to understand the sentiment and experience of Congress on this issue.
The natural assumption is that the Democratic administration will regulate more strictly than the Republican administration, but some have argued that Biden will be "good for the cryptocurrency."
Perhaps, but bitcoin enthusiasts tend to ignore issues such as anonymity and its potential use for fraud; this is a very serious problem for regulators.
Biden's team could well have come up with a more comprehensive and rational way to regulate cryptocurrency, but I would not bet on any favoritism towards bitcoins in particular.
5. Continuing instability
Since the value of bitcoin is not directly related to any obvious phenomenon in the real world (such as fiscal or monetary policy), it can rise or depreciate in ways that are difficult to predict or even explain.
This makes it difficult to recommend as an investment for those hoping to avoid big losses. Some say bitcoin could hit the $ 50,000 mark next year, and while this seems excessive, it is possible that investors are transferring money from other assets to bitcoin.
Of course, it is entirely possible that the price will move in the opposite direction in 2021. The only thing that seems certain is that the 2020 wild ride will repeat itself, so buckle up.
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