What’s the future of the Bitcoin market?
Bitcoin. The world’s most popular cryptocurrency. It’s had a hell of a ride in 2021, from soaring highs to dramatic drops. But is there anything we can learn about the token’s future by looking at its present and its past?
The Bitcoin market
A look at Bitcoin price history in 2021
Bitcoin entered 2021 with a value of $28,000 per token. It subsequently shot up to $40,000, before flagging a little. Still, progress has been relativity strong. Several all-time highs have been reached in 2021 so far.
A peak of around $65,000 was reached in mid-April, before prices fell away again. Come the middle of May, and prices had climbed to around the $52,250 level. However, numerous factors led to a crash, with BTC dipping below $30,000 for the first time since January.
At the time of writing, the value of Bitcoin was approximately $33,240.
While it has fallen dramatically away from its April peak, the massive drop actually belies the year-to-date progress BTC has made so far.
According to CoinMarketCap data, BTC has gained 100% in the first five months of 2021, helping its market cap hit $1.1tn at the beginning of May. With the drop, however, Bitcoin’s market cap fell about 30% to $705bn last week.
Despite this, BTC is still up 30% year-on-year.
Bitcoin value and volatility
Cryptocurrencies are all subject to major price swings. Bitcoin probably shows this the most of all the most popular traded tokens. Certainly, it’s a market bellwether: when BTC rises, it brings other coins with it. When it falls other coins do too.
There is a couple of reasons for this.
- New – Despite being first created over a decade ago, Bitcoin and digital tokens are still a relatively new asset class. Effectively, it is still in the price discover phase.
- Decentralised – The whole point of Bitcoin, or at least its intended purpose, was to provide a decentralised currency outside the regular financial system. It’s not currently regulated in the same way fiat currency and other securities are traded (more on that later).
- Limited supply – There will only ever be 21 million bitcoin tokens mined. Scarcity can drive up prices – but if something were to affect the supply, as we’ve seen with China’s recent crypto mining clampdown, prices can take a big hit.
The Bitcoin market also fluctuates rapidly on news. For example, the recent retracement has been precipitated by China’s decision to come down hard on Bitcoin mining. It also lost value when Elon Musk’s Tesla u-turned on its decision to accept the token as payment for its vehicles.
Accordingly, the value of Bitcoin can also rise on good news. It spiked, for instance, when Tesla announced back in February it had picked up $1.5bn in Bitcoin as an investment vehicle.
Indeed, large scale investors and institutional backing also affects BTC price action. Whales, entities which hold at least 1,000 Bitcoin tokens in their digital wallets, can cause rapid price increases during Bitcoin market downturns by buying at low prices. The resultant interest increases demand amongst retail investors, starting the cycle over anew.
Bitcoin & regulation
We’ve touched on this earlier, but because cryptocurrency and BTC are fairly new assets, much of the regulatory framework around the world is still being properly developed.
Exchanges like Coinbase still need to be reviewed by the SEC to offer crypto exchanges in the US for example. The same goes for exchanges in other jurisdictions worldwide. But, because volatility is high in this sector, many nations are moving to protect retail investors against the high risks that come from crypto trading.
For example, the FCA has banned the sale of cryptocurrency derivatives to retail clients in the UK. China, not content with clamping down on Bitcoin mining operations, is moving to remove cryptocurrencies from its financial system altogether.
Despite this, we’ve seen lots of institutions step up their support for Bitcoin and cryptocurrency trading in 2021. The likes of Goldman Sachs, BNY Mellon, and Deutsche Bank, amongst the world’s major banks, have all opened, reopened, or enhanced their crypto offers for retail and institutional clients.
Where next for the Bitcoin market?
So, we know Bitcoin is very volatile; we know that, despite losing value, it’s still up year-to-date by a considerable margin; we know regulation is evolving alongside the market; we know retail and institutional interest is still very high.
In terms of what’s next for the Bitcoin market is more volatility, a clearer global regulatory framework, and continued trading.
But what about prices? Bitcoin has struggled to break out of the $30-39,000 range in June. Some believe, based on Bitcoin price history, this is nothing to worry about. Fundstrat’s Tom Lee, a BTC bull, is confident what we’re seeing is a technical blip, and believes an $100,000 price will happen by the end of 2021.
Citi Bank is even more confident, claiming Bitcoin will become the “currency of choice” for global trade going forward.
However, it does appear Bitcoin has moved away from its original purpose. Investors don’t buy BTC to make purchases with. They buy it for its perceived value, like any other security. To function as a proper currency, it has been theorised that the blockchain infrastructure Bitcoin relies on for creation and transactions would have to be majorly overhauled to cope with the strains of frequent, everyday purposes. We are not there yet.
In the short term, the market will be watching for BTC to clear $40,000 again.
The risks of investing in the Bitcoin market
Even secure trades come with the risk of capital loss. Based on price trends, Bitcoin and cryptocurrency investing and trading appears to carry much more risk of capital loss. If you are considering investing or trading the Bitcoin market, take extra caution. We’ve seen billions in value wiped out in an instant during the sector’s movements this year.
Only commit capital if you are comfortable taking any potential losses. Always do you research prior to committing any money too.