Why is Bitcoin rising and is it going to crash soon? What’s next when the price doubles to $ 40,000?
Bitcoin’s prices hit an all-time high of over $ 40,000 less than a month after the initial breakthrough of $ 20,000. Since the start of the last rally, which supposedly started in October, its value has quadrupled.
For professionals and newbies alike, or if you want to be the cryptocurrency expert at your next zoom party, it is natural to ask: Why are prices rising and is Bitcoin going to crash?
Bitcoin (BTC) was invented only 12 years ago as a novel electronic payment system built on an internet-based computer network that no individual, company, or government can control. The reality is that the cryptocurrency’s trading history is so brief, and the methods used to value the asset are still largely untested, that no one really knows exactly what it should be worth now or in the future.
Connected: Bitcoin Goes Institutional, Ethereum Spreads Its Wings: CoinDesk Q4 2020 Review
That hasn’t stopped digital asset investors or even Wall Street analysts from making price predictions between $ 50,000 and $ 400,000 or more.
Based on CoinDesk’s reporting, here are a few key reasons why Bitcoin prices have increased lately:
- Demand from institutional buyers, many of whom view Bitcoin as a hedge against inflation. The cryptocurrency is seen as a hedge against inflation, as only 21 million bitcoins can ever be created according to the network’s original programming. So there is a contrast to central banks like the Federal Reserve, which, based on a committee vote, can decide to print more money. Large asset managers like Tudor Investment and Guggenheim Partners have announced Bitcoin purchases or placed prices through futures contracts on the CME exchange in Chicago. Even old Wall Street firms like Morgan Stanley have weighed in with bullish comments. Analysts at JPMorgan Chase, the largest US bank, recently forecast a long-term price of $ 146,000.
- The decline of the US dollar in the foreign exchange markets. The US dollar index, a measure of the value of the dollar against major world currencies such as the euro and the Japanese yen, fell 6.8% in 2020 and fell again in 2021. This is the key to Bitcoin as the price of the cryptocurrency is primarily in US dollars. Possible reasons for the decline in the greenback include over $ 3 trillion in money printing by the Federal Reserve last year, accounting for roughly three-quarters of the total amount previously created in the US central bank’s 108-year history. Pictures of protesters storming the U.S. Capitol on Wednesday likely didn’t detract from America’s leadership on the global stage, and now many economists are predicting that large spending plans under a democratically controlled government would lead to new stimulus packages and potentially large budget deficits for the coming years. Much of this additional cost could be funded by additional pressures from Fed funds.
- Retail purchases. Lots of people speculate on Bitcoin prices, and it’s getting easier and easier to buy Bitcoin as major services like PayPal have made purchases possible over the past year. Analysts at digital asset firm ByteTree found this week that blockchain data has a high concentration of $ 600 bitcoin purchases – just as much as the American stimulus checks included in the latest US coronavirus bulletin. Emergency package have been published.
All of this has potentially resulted in a tremendous rally over the past few months. But could Bitcoin prices crash? Of course they could, several analysts told CoinDesk.
The price of the cryptocurrency is notoriously volatile, and significant and unexpected fluctuations in price are not uncommon. Below is a selection of comments from cryptocurrency analysts and other financial experts on what a pullback looks like and what could be causing it.
- Bitcoin “was and is extremely volatile” said Joe DiPasquale, CEO of BitBull Capital, a cryptocurrency-focused hedge fund. It wasn’t until Monday after prices rose to a new all-time high that they fell nearly $ 7,000. “What causes this is that people can use a lot of leverage so they can be washed out easily.” He sees a correction as possible, although there appear to be a lot of interested buyers around $ 28,000 so that level could work as price support.
- Since 2013, there has not been a single year in which prices have not fallen by at least 25% from a peak Achieved earlier this year, said Gavin Smith, CEO of digital asset company Panxora. He said he wouldn’t be surprised if bitcoin prices rose to $ 70,000 or $ 80,000, or a 40% setback. In the medium term he is optimistic: “Over a period of three years this is a great advantage.” In the long term, however, there is a risk that technological developments will overtake Bitcoin. “Even with quantum computers, there’s nothing on the horizon to suggest this could happen,” he says, “but it’s always dangerous to completely ignore the risk.”
- Bitcoin prices could rebound two to three times from their current levels before falling back to where they are. said Mike Venuto, co-portfolio manager of the publicly traded fund Amplify Transformational Data Sharing, which invests in stocks related to blockchain. That would mean a retracement of more than two-thirds of this hypothetical new all-time high. “What is more likely to lead to a crash is excessive abundance. I don’t think we’re there yet. ”
- “There will be swings, and yes, the swings will be wild.” said Denis Vinokourov, head of research at cryptocurrency prime broker Bequant. “They have a lot of retail flows that tend to panic.” He sees prices rising over the long term, at least in part due to the optimistic expectations of big Wall Street companies. “Can it go as high as $ 4,000? Yes. “One possible trigger for a quick sell-off could be government action against Tether (USDT), a privately issued dollar-linked digital token known as stablecoin that has become a major source of liquidity in digital asset markets New York state attorneys are currently battling Tether over her finances in court.
- “The history of financial markets is the history of bubbles” said James Angel, a professor of finance at Georgetown University. He notes that authorities could try to ripple the bitcoin rally if they are concerned that it will become a threat. “Almost everyone trying to start their own money does so in competition with a local currency, and it is usually brushed aside by regulators.”
- “While we are currently seeing a clear expression in the market’s bullish sentiment, a correction could be in sight.” said Sui Chung, CEO of CF Benchmarks, a cryptocurrency provider. “This is a natural part of market mechanics. While this can dampen buzz in the short term, it will ensure future price hikes stay on the ground. “
- “There will likely be profit-taking that will cause temporary slumps.” said Guy Hirsch, Managing Director for the USA at the trading platform eToro. “Given the tremendous acceptance by the institutions, it would be a surprise if Bitcoin soon fell below $ 20,000.”
Connected: Market Wrap: Bitcoin hits $ 40.3,000 while locked DeFi value climbs to over $ 22 billion
So for the Zoom party, they can be told: yes, according to experts, a crash is likely to come, but that’s typical of Bitcoin, and if history is a guide, prices are likely to rebound.
Just don’t tell them when.
The views and opinions expressed herein are those of the author and do not necessarily reflect those of Nasdaq, Inc.