As always, there are people predicting Bitcoin’s imminent doom as well as Bitcoin’s imminent ascendency to being a major player in global finance. Beyond the hype of doom or moon, though, there are concrete reasons to expect Bitcoin’s price to boom once again in the coming year or two. Here are the top five reasons for Bitcoin’s next price explosion.
1. The 2020 Economic Crisis + Money Printing
Plenty of people had previously said that Bitcoin had only done well in its first decade because most of the world was in a decade long economic expansion, and that as soon as a recession hit Bitcoin would be doomed. Well, now we know that was wrong.
Massive money printing is a double boom to Bitcoin’s price.
Bitcoin, like pretty much every global asset or market, crashed hard on the panic sell in March related to the pandemic and the quarantine’s shutting down of economies. But that is to be expected, since it was an all-market crash. What we have seen since that mid-March crash is that Bitcoin performs very well in an economic crisis. Bitcoin is having a fantastic year despite crashing hard in March.
But more importantly for Bitcoin’s long term price appreciation, and the mid-term explosion that is coming, is that money printing machines of central banks have been turned on high this year. Not only does this mean more inflation in fiat currencies in the future (something Bitcoin is immune to), but also more money floating out in the world that can find its way into good investments, and undoubtedly some of that money has and will continue to find its way into Bitcoin. So, massive money printing is a double boon to Bitcoin’s price and will affect the price in the current market cycle as people move their cash into inflation-proof assets.
2. Institutional Investors continue to tip-toe into the market
For several years now, every once in a while some institutional investor on Wall St will make headlines by investing myriad millions of dollars into Bitcoin. I don’t expect this market to suddenly explode, but it will continue to be a driving force and should gradually increase as times go on, and should play a role in the price appreciation this next year or two.
If we even just look at the main way for US investors to get ahold of Bitcoin in a regulated investment account as opposed to simply owning Bitcoin directly themselves, The GrayScale Bitcoin Trust (GBTC), business has been booming. GBTC made headlines in May for buying up more Bitcoin than was being mined post-halving, just by themselves. That’s a single investment company eating up more than the entire supply of newly mined bitcoin. As of their most recent quarterly update, they have $4.4 billion in Bitcoin on behalf of their clients. In February GBTC had over 285,000 BTC and judging by its recent numbers likely has well over 400,000 BTC now just 6 months later. This is just one player, currently the main or only player in the US, but there will surely be more Bitcoin funds on Wall St in the coming years.
A single investment company eating up more than the entire supply of newly mined bitcoin.
Beyond just that one fund, the institutional infrastructure for the Bitcoin market has been growing the past couple of years for those interested in getting directly into the Bitcoin market as well as those interested in betting on its derivatives. Bakkt is a regulated Wall St exchange created and backed by major Wall St players that has Bitcoin futures markets. Fidelity now does Bitcoin custody for Wall St investors. COINBASE has been growing their institutional custody. The appetite for Bitcoin in Wall St has been steadily growing and they are slowly but surely joining the market.
All of this is leading to Bitcoin slowly becoming perceived as a normal asset in the Wall St mindset, which will open it up to a steady flow of large amounts of fresh investment in the coming years.
3. The May 2020 Bitcoin Halving & Normal Market Cycle Dynamics
So far in Bitcoin’s still-young life, it’s three halving events, occurring roughly every four years, have been suspected to be the major catalysts behind Bitcoin’s major bull markets. New bitcoin gets minted roughly every 10 minutes, and each halving cuts that amount in half. Bitcoin’s mining reward halved from 50 BTC to 25 BTC in 2012, and in 2013 the price exploded by two orders of magnitude from about $13 to about $1150 in December of that year. In 2016 it halved from 25 BTC to 12.5 BTC and in 2017 Bitcoin’s price exploded 20x from $1000 on January 1st to roughly $20,000 by mid-December.
The reason is just simple supply and demand. With an ever increasing demand on Bitcoin over the long term, these built-in supply reducing halving events lead to a forced price appreciation which then builds into market hype and FOMO that result in a huge bull run.
Simple supply and demand.
It isn’t hard to predict the broad strokes of Bitcoin’s market cycles. It is an emerging market asset with incredible potential and functionality, with a built-in and automated monetary design that favors price appreciation. This leads to extremely volatile market cycles that involve huge buying frenzies leading to immense price appreciation followed by sharp crashes and extremely deep bear markets, but with the overall trend being massively upwards with each new market cycle. The most recent boom and crash was 2017/2018, so historically it has been expected that 2019 and 2020 would be a gradual build up back toward the heights of the last market cycle’s peak (which is indeed what we have been seeing the past 18 months), which then should lead into the next parabolic move upwards in 2021, and perhaps 2022 as well if the market moves a bit slower now because of its size.
4. Companies Switching to BTC as their Reserve Currency
MicroStrategy, a company you probably haven’t heard of but has as of right now a $1.4 billion market cap, signaled that they had just moved a quarter of a billion dollars into Bitcoin and would now be using it as their “principal holding in its treasury reserve strategy.”
MicroStrategy just bought 21,454 BTC.
This is big news.
Companies hold a lot of money in cash as reserves. MicroStrategy isn’t even a huge company by global standards, and yet it just bought 21,454 BTC for a quarter billion dollars.
With the expected inflation increases from mass money printing, as discussed above, and just this month the US Fed announcing that they will no longer target 2% inflation and will allow inflation in the future to drift higher, it makes sense for companies to put some of their long term reserves into Bitcoin as a hedge to balance against the inflation that their cash reserves will incur.
If this is the start of companies moving even just a few percent of their cash reserves into Bitcoin in order to protect the value of their money, this alone could lead to mass price appreciation — I’m talking an order of magnitude from this factor alone in the years to come. With the money printing that has been happening this year, and the Fed’s new looser strategy on inflation, it is very possible we will see the beginning of this shift, during which billions of dollars could flow into Bitcoin in just the next year or two if even a small number of companies move to protect their money from inflation. This may not become a widely done thing for years, but it has started this month with MicroStrategy and even just the early beginnings of this could play a big role in the current market cycle.
5. Decentralized Finance (DeFi)
DeFi has become the next big thing in crypto. As ICO’s were to 2017, DeFi seems to be to 2020 and likely beyond, though DeFi looks likely to be much less shady/scammy/full of hot air and ephemeral as ICOs. Forbes describes DeFi as “the notion that crypto entrepreneurs can recreate traditional financial instruments in a decentralized architecture, outside of companies’ and governments’ control.” DeFi is to financial instruments what Bitcoin is to money — it democratizes, digitizes, and decentralizes it for generally greater efficiency and trust.
Bitcoin can basically be used as the principal for DeFi smart contracts on Ethereum.
DeFi is a market that has been steadily gaining steam for a couple years and is just starting to really come into its own now. Ethereum is the main blockchain on which DeFi occurs, and DeFi-related tokens on the Ethereum blockchain are booming as of late. This is great for Bitcoin not just because it expands the overall crypto market which inevitably leads people to Bitcoin, as ICOs did in 2017, but because there are now products that can tie Bitcoin to Ethereum to use it for DeFi!
Without going into too much detail, Bitcoin can basically be used as the principal for DeFi smart contracts on Ethereum by allowing people to tie up their Bitcoin in exchange for Ethereum. The most popular crypto-token for doing this currently is called Wrapped Bitcoin (WBTC), and even though it has only been around for a few months it has gained a lot of popularity in DeFi and currently boasts a supply of over 28,000 Bitcoin, meaning that many Bitcoin are tied up in WBTC.
It is natural that BTC should become a major player in DeFi now that bridges exist between BTC and ETH to allow this. BTC has by far the most liquidity of anything in the crypto market, making up over 50% of the entire cryptocurrency market. DeFi will flourish with Bitcoin’s added liquidity, and in return DeFi will tie up a lot of Bitcoin’s active market supply, leading to price appreciation. DeFi seems to be the main mover in the crypto market outside of Bitcoin itself right now, and it looks like a concept that will stick around, so don’t be surprised if a year from now there are hundreds of thousands of BTC taken off the market and tied up in decentralized finance.
Those are the top five reasons why Bitcoin is likely to greatly appreciate in value from now through 2021 or 2022. An order of magnitude higher price (from today’s $11k price) isn’t out of the question in the next couple of years given these price-booming influences.
