Bitcoin has had an eventful year – especially in terms of price. As institutional money pours into the asset, the stakes of its medium to long-term price fluctuations are higher than ever. They are also likely to affect the value of various altcoins including Ethereum and Cardano – as they usually do. Let’s examine what […]
Bitcoin has had an eventful year – especially in terms of price. As institutional money pours into the asset, the stakes of its medium to long-term price fluctuations are higher than ever. They are also likely to affect the value of various altcoins including Ethereum and Cardano – as they usually do.
Let’s examine what sorts of changes we can expect from Bitcoin’s price in this year’s final quarter.
Recap: The Bitcoin Price Throughout 2021
First, we ought to review how the Bitcoin price has developed and changed leading up to today. Before this year, the currency seldom traded near $20 000, and frequently traded below $10 000 since December of 2017. This changed starting in mid December, after which the price burst passed $30 000. Since then, it has only fallen below this price once, and very briefly at that.
Euphoric New Year
This price pump may have surprised outsiders, but was well expected from veterans of the crypto space. Bitcoin experienced similar surges in the years 2013 and 2017 as part of a cyclical four-year price movement.
These are hypothetically caused by regular Bitcoin block reward ‘halvings’ which occur in approximately the same time frame. One such halving occurred on May 11th, 2020, reducing Bitcoin’s production rate from 12.5 to 6.25 BTC per block. This event was long expected to cause a supply shock, which would lead to another price run-up in 2021. We will return to this subject later.
Bitcoin’s popularity and price grew further following an endorsement from Elon Musk in February. At the time, he announced that Tesla had invested $1.5 billion in Bitcoin, and regularly tweeted positive things about it. This flooded the market with thousands of Elon’s fans to bring the price within the fifty thousands in February, and even within the sixty thousands in April.
Easy come; easy go, however. Musk later tempered his unbridled excitement for Bitcoin, and revealed that Tesla would no longer accept it for car payments. This led to a stream of media FUD surrounding Bitcoin and its supposed environmental damage caused by Proof-of-Work. Combined with a simultaneous crackdown on Bitcoin mining in China, the price crashed in mid-May to 50% of its former value. It stabilized at about $30 000, back to where it was before Elon ever got involved.
Back to Reality
Bitcoin mostly stayed locked between $30 to 35 thousand in the following months. However, after the Grayscale Bitcoin Trust finished unlocking shares for sale in July, buyers began entering the market once again.
The price slowly climbed its way back up to $50 thousand in September, at which point it met resistance. However, like previous cycles, Bitcoin began rising again starting this October, and has since reached a new all time high above $67 thousand. Today, Bitcoin trades steadily above $60 thousand. Interestingly, almost this entire sequence of events was predicted by one prominent Bitcoiner early in the year.
Where We Are: Differences From Previous Cycles
As Bitcoin appears to be mimicking its behavior from previous bull cycles, its value is expected to rise substantially in the coming months. In 2013 and 2017, the currency’s price saw pronounced gains beginning in October, followed by eruptions in mid December. These eruptions were followed by steep collapses, leading to sustained price decline over the following year.
Should the next two months follow the same pattern, Bitcoin would be expected to top as high as $300 thousand. The price could then fall by 20-30% heading into the new year to about $230 thousand, and see another sustained decline through 2022.
However, certain circumstances have most people expecting less dramatic movements heading into December. Bitcoin is operating at an entirely different price scale then it has in years prior. As such, the type of investors that would cause its price to move by similar multiples must be institutional. Retail buyers – the driving force behind 2017’s $20 thousand peak – simply lack the capital and demand to make that happen.
Why does this matter? Because institutional investors are not suspected to buy or sell Bitcoin on a whim, whether in a bull or bear market. Therefore, price swings are expected to be less volatile all around as BTC’s price grows.
Unprecedented Institutional Investment
Bitcoin’s price surge this month does appear to be driven by institutions. Weeks ago, a mystery whale purchased $1.6 billion in Bitcoin within minutes, immediately raising the price by thousands. Even a US pension fund is now receiving exposure to digital assets, alongside various fund managers.
Then there are the obvious cases of Tesla and Microstrategy. Each company is suspected to own at least 40 000 and 100 000 coins respectively, and they do not plan to sell any of them.
On-chain signals would indicate similar HODLing across the entire Bitcoin market. More than 85% of the Bitcoin supply hadn’t moved wallets within 3 months leading up to early October. Likewise, the number of Bitcoin circulating on exchanges is at relative lows, meaning there is little intention in the market to sell.
The good news is that this means Bitcoin is unlikely to see an abrupt collapse from $60 thousand. What remains to be seen, however, is whether it can retain its upward momentum. Many more institutions would need to rush into the asset to raise its price at rates like in 2017.
Bitcoin Mining: Bigger, Greener, and Less Centralized
An oft unconsidered metric when evaluating Bitcoin’s price is network hash power.
As expected, Bitcoin mining is now more competitive than ever. This means it takes more energy than ever before to win the Bitcoin produced in each block. We’ve already been over the value of each Bitcoin increase as they are produced at a slower rate. However, we must also consider what it means for mining to reach a standard market difficulty.
With the energy used to mine each block comes substantial costs proportionate to that energy. These can be considered “production costs” similar to costs required to mine gold or produce products. In some ways, these costs serve as a floor for Bitcoin’s price. For example, if miners must spend a minimum of $60 thousand dollars to mine each bitcoin, then they cannot afford to sell them on the market for anything less.
As such, Bitcoin’s price can remain strong at key levels even if markets are otherwise unconfident. As long as miners on the network stay active, Bitcoin must be marketed at a high price. In fact, the market crash in May could probably be attributed to China’s crackdown on Bitcoin mining; not just for producing FUD, but for lowering the competitiveness of mining. Just as the network hash rate fell by 50%, so did Bitcoin’s price.
Today, the hash rate is nearly back up to what it was before China ejected miners from the country. Likewise, Bitcoin’s price is hovering roughly where it was at the time of this year’s early high. However, these miners have mostly re-emerged in the United States, and other free countries. Therefore, there is more reason to be confident that Bitcoin will not fall much lower than $60 thousand in the next two months.
In Conclusion: Price Predictions
Given the circumstances outlined above, it’s unlikely that Bitcoin would fall from its current price point in the coming months. It is highly likely that $60 thousand provides strong support, and that the price increases fast from here. The question, however, is by how much?
Popular Bitcoin price analyst “Plan B” predicts substantial price increases to come, yet still more moderate than previous cycles. He’s estimated a minimum of $98 thousand per Bitcoin by the end of November, and $135 thousand by year’s end. So far, his predictions for September, November, and October have been on the mark.
Others are far more bullish. Max Keiser – Bitcoin OG and maximalist – maintains that Bitcoin will reach $220 thousand before January. Keiser successfully predicted the end-year price for 2020 within a $1000 margin of error.
Personally, I envision Bitcoin reaching $200 thousand in December, and then moderately falling back to $80 000 after a year. I believe this prediction accounts well for Bitcoin’s history, as well as the unique circumstances surrounding the asset today.