Bitcoin has taken investors for quite the ride in 2020. There was a big drop in its value shortly after the World Health Organization (WHO) declared COVID-19 a pandemic. The public health crisis is still looming over the heads of investors, but cryptocurrencies like Bitcoin have managed to pull ahead.
Many people believe that the stock market is in a bubble, and they see the wide adoption of cryptocurrency by governments around the world as a sign of mainstream acceptance. Read on to learn about four indicators that will drive the price of Bitcoin in 2021.
1) Cryptocurrency Demand
If you had invested $1,000 in Bitcoin back in 2015, you would have $43,000 today. Most cryptocurrency analysts predict that more big gains are in Bitcoin’s future. Those gains are directly related to the demand for cryptocurrency. The reason for the demand is simple. Bitcoin is the world’s sixth-highest used currency. It’s used more than the British pound. Its trading volume is six times that of the United States dollar. Cryptocurrency developers and venture capitalists use it almost exclusively. Every other digital coin is compared to it. Bitcoin is the gold standard of cryptocurrency.
2) Willingness to Take a Risk
In 2020, there have been crises nobody could have expected. The economic downturn, mass layoffs, disruptions in supply chains and political uncertainty have caused people to not want to take as many risks with their money. However, the small population of high-risk investors are still willing to put themselves out there. Some of them see Bitcoin as a hedge against inflation especially in developing markets. This is one of the reasons we’ve seen an exponential growth in users and Bitcoin price in India. Bitcoin fits in well with other types of risky assets. Its returns are only 9% correlated with gold, but they’re 19% correlated with junk bonds. When investors are confident, Bitcoin’s price goes up. When they’re weary, Bitcoin’s value drops.
3) Technical Issues
Bitcoin still looks a lot like the inefficient networks that proliferated the financial markets in the 1970s. It’s traded on exchanges that aren’t connected to each other. That makes it a challenge to track its price. Investors worry over manipulation between exchanges. The low-tech exchanges make it easy for savvy investors to use tech strategies to make money on Bitcoin. Those strategies will thrive in 2021. Using tech-driven strategies could yield returns that are 15% higher than those that just buy and hold Bitcoin.
4) How and If the COVID-19 Crisis Ends
The COVID-19 pandemic will also play a role in the price of Bitcoin. If mainstream investors see stocks as too risky, they’ll look for other places to put their money. Some might turn to gold or other precious metals, but others who are forward-thinking will turn to Bitcoin. With more and more transactions becoming digital, people need ways to make interstate and international payments. If a vaccine for COVID-19 is available by the summer of 2021, investors should see more stability in Bitcoin’s price. People will feel more confident in the future, and they’ll be more willing to make investments with their money instead of keeping their assets in a liquid account. How quickly the economy turns around matters. If it turns around quickly, Bitcoin could reach a range of $15,000 to $20,000 by the end of 2021.
