The cryptocurrency, which has been setting record after record in recent days, has not yet exhausted its capabilities. Nevertheless, there are obstacles on its way up.
A complicated history of records
Bloomberg analysts predict fluctuations in the range of 10– 50 thousand dollars for the first cryptocurrency next year, which at the peak implies a capitalization of 1 trillion dollars, on the latest data on the dynamics of the most expensive cryptocurrency, the chief of analysts at the Higher School of Financial Management Mikhail Kogan. Only four companies trading on Wall Street can boast of such capitalization today, he noted.
Recall that in January this year, Alphabet became the fourth American company to overcome the trillion-dollar threshold, following Apple, Microsoft and Amazon. And the capitalization of bitcoin is now slightly more than $ 400 billion.
During the trading session on Thursday, bitcoin broke the $ 23,000 mark for the first time, and on Friday it is holding above this level, although below yesterday’s maximum. This cryptocurrency reached the previous record two years ago, in the second decade of December 2018, when its quotes exceeded 17 thousand dollars.
Then a crushing collapse followed the takeoff. At the same time, the forecasts were rosy. Although the growth of bitcoin has rarely been called anything other than speculative and, in fact, unexplained.
Today, the market is talking about the fact that even before the end of the year, this cryptocurrency may exceed 25 thousand. However, there are more cautious opinions: according to a number of signs, we are dealing with a new bubble.
But, according to the results of a survey conducted by the Izvestia newspaper, analysts are confident that the bitcoin exchange rate will continue to grow at least until the end of the first quarter of 2021. One of the reasons for the growth of the bitcoin exchange rate was investments in cryptocurrency by large companies, including such technological organizations as Microstategy, Stone Ridge and Square, which invested more than $ 600 million in it in the fall.
But the “coin” is not growing alone. So, the Ethereum cryptocurrency cost $ 324 on June 10, $ 445.8 on November 10, and on December 18 it is quoted at $ 650 per unit.
68 trillion turned their heads to Bitcoin
The reason for optimism about cryptocurrencies is the growing distrust of fiat currencies issued by the world’s leading central banks, Mikhail Kogan notes. To mitigate the effects of the pandemic, the Fed buys $120 billion worth of assets from the market every month at the expense of the “printing press”, promising to keep interest rates close to zero at least until the end of 2022.
As a salvation from the decline in the purchasing power of fiat money, investors are looking for refuge in gold, the expert says, and the idea of placing capital in its digital counterpart, bitcoin, is gaining popularity among them. Some of the largest investors, billionaires and economists are gradually shifting from skepticism about the first cryptocurrency to the understanding that a new asset class is emerging before their eyes, into which institutional investors and public companies have rushed to place their reserves in bitcoin.
Bitcoin is opposed to national currencies by such a parameter as the issue. In the first cryptocurrency, it is programmed algorithmically and has a finite character of 21 million coins. Every four years, the amount of reward to miners who “mine” it (in other words, increase the supply) is halved, which creates a disinflationary effect and generates value.
Critics pay attention to the fact that bitcoin is not secured by anything and will “burst”, but almost 12 years have passed since its creation in the last crisis, so it has proved its “resilience”, says Mikhail Kogan.
The long-term risk for bitcoin is the emergence of national digital currencies (CBDC) issued by central banks using elements of the same technology as bitcoin. However, it will be in the category of theoretical, if the Central Bank implements the same policy as now in fiat currencies, the analyst says.
It is likely that other cryptocurrencies will disappear, on the basis of which no product will be created, and bitcoin, as a pioneer, due to its algorithm, will remain in the status of “digital gold” in the coming decades, unless the world goes through a “reboot” and a currency that will be highly trusted appears, he argues.
It is worth remembering, the expert warns, that bitcoin remains a risky asset and its fluctuations are still several times higher than the indicators of the same gold. Even if the fundamental reasons for growth remain, it will also be subject to significant corrections. In March of the outgoing year, its value collapsed by more than 40% per day, which, however, has not prevented it from growing six times from the lows reached since then.
It is possible to allow the formation of a technical correction of tens of percent at some stage in 2021 after the current spurt in October-December by more than 110%, the analyst suggests. Only it won’t become an anti-record anymore. Bitcoin lost more than 90% of its value as it “matured”. But then he was supported by retail investors. Now it’s time for institutions that will smooth out the volatility and, due to the mentioned factors, will rather increase their positions than increase the fall.
The generation of millennials who will inherit the current $68 trillion fortune looks at bitcoin favorably, adds Mikhail Kogan. The number of public companies that declare their investments in the first cryptocurrency continues to grow. All this increases the chances of realizing Bloomberg’s forecasts for the movement of bitcoin in 2021.
What will be the word of the traditional economy?
The growth of bitcoin is due to several factors, the main of which are quantitative easing programs or support for the economies of developed countries. Investors, primarily national ones, are trying to save their funds from actual inflation, which is developing for investment instruments, especially when some negative factors related to the pandemic come.
The money launched into the economy, which led to the growth of stock indices, is facing negative phenomena, the banker says. In particular, some cities in Europe are leaving for a New Year lockdown. In England, they announced the emergence of a new strain of the virus, which is spreading faster than Covid-19. This creates another risk of a large lockdown wave, which is disastrous for the traditional economy.
This situation forces investors to protect their investments and withdraw them from the traditional, fiat economy to areas more resistant to such changes. Bitcoin is the most common cryptocurrency, gets the most effect from this overflow. But such a situation would be impossible or would be of less importance if national players did not actively participate in investments in the crypto economy, and now this is exactly the case. That is, large banks, management funds, and companies from the non-financial sector are beginning to actively buy and invest in cryptocurrencies.
This is due, he believes, not only to the situation on the markets, but also to changes in regulation: in particular, the head of the financial regulator who is responsible for working with such assets has been replaced in America. The previous one was an opponent of the development of cryptocurrencies, and under his leadership, the SEC initiated several investigations against successful ICO projects that not only raised money, but also carried out some kind of activity.
Now the new head of the department speaks out for cryptocurrencies. He sees that the tough policy that was conducted earlier led to the infringement of the technological development of blockchain technology in the United States and their lag in technology from China. Blockchain technologies, and cryptocurrencies in particular, are actively developing in the world and are becoming increasingly popular, including at the state level. The same China has already launched the digital yuan and is scaling it within several cities. On the approach of the digital ruble in Russia, Europe has repeatedly said plans to launch a digital euro, Popov points out.
The US is trying to dramatically catch up with this backlog, so the regulator has changed its anger to mercy, and several large companies have already announced either a partnership with crypto projects, or support for cryptocurrencies, or even the creation of their own cryptocurrencies. In particular, Visa has announced integration with one of the crypto projects that allows you to integrate payments in the crypto token with fiat transactions on Visa cards. PayPal has announced the possibility of buying and selling bitcoin and other popular cryptocurrencies by holders of their wallets in the United States.
Facebook has finally been able to lobby for the launch of its stablecoin, which will be called not libra, but DM. The stablecoin will be tied to the dollar exchange rate and, in fact, will be an analogue of USDT, but with more support from the point of view of infrastructure and public recognition, because Facebook has a wide network of business contacts, and when launching cryptocurrencies within its official network, it is widely used.
All this supports the interest of investors and provides obvious opportunities for the infusion of funds. So, previously, a client in America had to look for crypto exchanges or crypto exchanges, and Americans have become not the most desirable users of various financial services, because their funds need to be additionally reported to the SEC. Now they can do it using PayPal.
The quotes of cryptocurrencies are growing along with the improvement of the situation in the traditional economy, the banker notes. But at the same time, with the restoration of the traditional economy, the stabilization of markets and the growth of quotations can lead to the opposite situation. Then investors, on the contrary, will get rid of bitcoin and other cryptocurrencies in favor of the traditional stock market. The expert believes that the cost of bitcoin will depend on these factors, but in the long term, he believes, its rate will grow.