What to expect from cryptocurrency in 2021?
Cryptocurrency has gradually turned from a niche technology that is of interest exclusively to IT specialists into a full-fledged part of life. Of course, it is still a far cry from paper money, to which most people are accustomed, but it is developing and gaining popularity literally by leaps and bounds. But what to expect from it this year, and how appropriate is it to think about investing your own funds into "coins" right now? Let's try to figure it out.
What came before
We have already talked in detail about how bitcoin appeared and formed the basis for the crypto sphere as such. So, we will not go so deeply into its history this time. Instead, let's pay attention to last year’s events, which, in most cases, underlie analyst projections.
Surprisingly, the main impetus for bitcoin development came from the pandemic that swept the world in early 2020. It instantly showed how unstable and volatile the global economic order was. Rapid inflation and general uncertainty compelled people around the world to look for a more stable and independent asset to invest in. Moreover, the purpose of investments was not so much to earn money as to preserve savings. So, cryptocurrency, decentralized and independent from the very start, has become a genuine breath of fresh air for many.
However, demand has always been almost the only factor that could impact it. The growth of interest in bitcoin and its derivatives from private investors, enthusiasts and companies has provoked an almost instant jump in its value. In 2020, the number of institutional investors that joined the crypto exchange surged by 68% and in 2021, it continued to grow at an even faster pace.
We may mention Tesla among the large companies that have played an important role in this process. In February, the company announced that it had invested one billion dollars in Bitcoin, and in March, it began to accept payments for its cars in cryptocurrency.
The chart below shows the impact of all those actions on the Bitcoin price last year:
Needless to say, there are other cryptocurrencies aside from Bitcoin, but, as practice shows, the latter currency may be definitely regarded as a benchmark of the entire market. The chart below shows growth in the price of Ethereum, which tops the list of BTC alternatives, in the same period.
The same is true of smaller altcoins, with the respective market being filled with new coins and tokens at lightning speed. As a consequence, the cryptocurrency market hit a new all-time high above 2 trillion US dollars, according to data from the leading analytical companies CoinGecko and Blockfolio.
Interestingly, on this indicator, the cryptocurrency market has caught up with Apple, the world’s most expensive company, which reached the same mark in August 2020. However, it took the company three long years to double its market cap from 1 trillion dollars, while the crypto market has completed the same task in just 3 months, given its market cap of 1 trillion dollars in January 2021.
What to expect
Most high-profile investors, analysts and other people involved with cryptocurrency agree that, despite the highly volatile and risky market, it is now the right time to discover cryptocurrency. It will definitely continue to gain in popularity and value. Quite a few analysts, including Changpeng Zhao, the founder of the world's largest crypto exchange Binance, forecast the bitcoin price to reach $ 100,000 before the year is out.
The attention being paid by the largest payment systems and banks to BTC is an indirect confirmation of this:
• PayPal announced in March that all of its US users may use cryptocurrency for purchase payments around the world,
• VISA has announced the issuance of bank cards with cashback in bitcoins,
• Morgan Stanley, one of the leading US investment banks, has promised its clients to look into the possibility of including bitcoin in "classic" investment portfolios.
· Central banks in various countries are already working on the release of their own official cryptocurrency. In May 2020, the digital yuan began to circulate in a number of large cities in China (its full-scale integration into the economy is planned for 2022). Sweden is set to release the e-krona as early as this year. There are even plans to issue a digital ruble for use as a cryptocurrency. All this does not have a direct impact on bitcoin, but it definitely signals a deeper integration of the once illegal, unofficial means of payment into everyday life.
But what about the April fall in bitcoin?
This question may be asked by those who keep track of the cryptocurrency market. After skyrocketing by 1000% last year, the currency lost 25% of its capitalization in just a week in April, with its price declining from $ 55,300 to $ 48,800 per coin. This has led to a 17% drop in the capitalization of Ethereum, while the total value of the global cryptocurrency has dropped by $ 430 billion.
Two reasons are being cited:
• One of Turkey's leading cryptocurrency exchanges was suspected of stealing $ 2 billion from its clients.
• Biden has proposed to double the capital gains tax to above 43% (it is paid by US resident investors who make money on financial assets).
China has added oil to the fire. In the wake of accidents at its coal pits, overall Bitcoin mining has fallen, the hash rate has plummeted by 30%, while mining difficulty has increased significantly. In the meantime, the general shortage of equipment makes it hard to regain the previous indicators.
All this has led to a serious outflow of investors, who simply could not bear the negative news flow.
Is it the sign of a cryptocurrency bubble? Does it mean the imminent collapse of the entire crypto world? Not at all.
1. This is just another confirmation of the instability and volatility of the crypto market, about which all specialized platforms and experienced investors have warned.
2. Despite the serious drop, most experienced analysts point out that this is just another stage of the market. Guggenheim Investments estimates the price of bitcoin to reach between $400,000 - $600,000 in the upshot.
3. A number of investors regard such a drop as an advantage rather than a minus. Those interested in the cryptocurrency have a great chance to buy BTC not at $64 800 (the peak price fixed on Binance), but at $56,000.
Finally, the active growth of bitcoin may be expected after May 9, and starting on July 1, the market will get a new incentive. The Bundestag has already approved a bill that allows German investment funds for institutional clients to invest up to 20% of assets in cryptocurrency from 1.07.2021. According to preliminary estimates, this will raise up to 350 billion euros. And, of course, we should not forget that the growth of bitcoin will certainly entail an increase in the price of altcoins. And maybe, it is now the right time to think about investing in this currency.