November 24, 2020

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The Speculation for Next Year

Now that we have finished the year (and the decade) it is important to take a look at Bitcoin’s past performance to get an idea of where it might go this year. Clearly it has been a turbulent year for crypto currencies in general, as Bitcoin and Co. have been much more targeted by regulators. So the rumor mill has been shortened and there is already much speculation about where Bitcoin will go next year. 

Currently Bitcoin is moving around $7,000, so it’s a better start for the coin than $4,300 at the beginning of 2019, but with an ambitious target like $20,000, there’s still plenty of room for improvement before Bitcoin repeats the rapid development of late 2017. 

The overall economy plays a much greater role in the price of Bitcoin than many would like to admit. Some would say that Bitcoin is completely independent of the development of the U.S. dollar or other major fiat currencies, while some would argue that it has a strong, negative link to economic development. As the Federal Reserve and the European Central Bank are printing much more money, we can expect further inflationary pressure on the fiat currency. This may lead to more investors buying Bitcoin to hedge against fiat risk.

One statistic we would like to highlight is the recent finding that 64% of the Bitcoin in circulation this year has remained in the same wallet. That HODL’er show such a conviction is perhaps the most important factor to consider this year. The attitude to “save” rather than sell its currency has helped to support the price of Bitcoin. Investors are thinking more long-term and this will have a positive effect on Bitcoin’s performance in the long run.

Multi-Factor Analysis

First, we would like to break down the various pressure factors on Bitcoin and their long-term effects. Of course, this is a complex ecosystem and we cannot predict which factors will have the strongest effect, but this is a necessary aspect of this analysis. 

For example, there is a growing pressure on the price of Bitcoin that is related to the Bitcoin miners. When the price of Bitcoin decreases, the value of the compensation they receive for supporting the network, i.e. the mining, also decreases. If this happens in the long term, there is a risk that they will leave the network and thus abandon the mining of further Bitcoin. In addition, the miners may decide to sell their remuneration so as not to be dependent on the price of Bitcoin.

This is basically a short-lived concern about the price of Bitcoin. The Miners are forced to develop a long-term mining strategy because it is not so easy for them to sell all their Bitcoin and migrate to another platform.  The break-even price for mining Bitcoin is estimated at the low $4,000. Since we know this, we can expect additional pressure, but it would have to be a prolonged price decline for this to have a lasting effect on the price.