As we close out the year (and the decade), it’s important to look at the past performance of Bitcoin and where we can expect it to go next year. This was a tumultuous year for cryptocurrency as it received much more regulatory attention, and there have been a wide variety of guesses on where Bitcoin will go in the next year.
Right now Bitcoin is hovering around the mid $7,000s, which represents a massive return from the $4,300 it started 2019 at. However, with an all-time high of approximately $20k, there is still lots of room to run before Bitcoin shows developments like late 2017.
One statistic we’d like to highlight is the recent findings that 64% of the Bitcoin in circulation has stayed in the same wallet this year. That HODL’ers show such conviction is perhaps the most important factor we could look for. A single meme has helped to support the price of Bitcoin by getting investors to think more long-term, and that will have positive long-term effects for its performance.
Multi-Factor Analysis
The first thing we’d like to do is break down the various pressures on Bitcoin and their long-term implications. Obviously, this is a complex ecosystem and we can’t predict which factors will have the strongest effect, but this is a necessary aspect of the analysis.
For example, there is a compounding downwards pressure on the price of Bitcoin that is related to Bitcoin miners. As the price of Bitcoin goes down, so does the value of the reward they receive for supporting the network. If this continues to happen, they may capitulate and leave the network. Additionally, these miners may decide to sell-off their mining reward in order to limit their downward exposure to Bitcoin.
This is a short-term worry for the price of Bitcoin, but it is a little less likely to manifest in the same way, as miners have to make long-term investments in their strategy and can’t defect as easily as just selling off their Bitcoin and beginning to mine another cryptocurrency. The breakeven price of mining Bitcoin is estimated to be in the low $4,000’s. Knowing this, we can expect some extra downward pressure as we reach those points, but it would have to be a sustained price drop for this to matter for the long-term price of Bitcoin.
Macroeconomics tend to play a much larger role in the price of Bitcoin than many would like to admit. Some would say that Bitcoin is completed uncorrelated to the performance of the US dollar or other major fiat currencies, and others would say that it has a strong negative correlation with the performance of the economy. With the Federal Reserve and European Central printing much more money, we can expect further inflationary pressures on fiat currency, which should lead to more investors buying Bitcoin to hedge the fiat risk.
Plus, we are entering a period of major strife where China and the U.S. are in a trade war. It may be calming down a bit, but still represents some instability in the market. This instability has historically had a positive effect on Bitcoin, but we’re unsure what it will do now.
So do we think that the macroeconomic climate will be more or less stable going into 2020? With impeachment at the forefront of our news cycle, we are definitely in tumultuous times. However, the markets have been performing well and there have been some positive developments in the States, so we can conclude this to be “neutral” right now.
The “halvening”, as it is often referred to, will occur next year and represents a decrease in the mining reward on the Bitcoin blockchain. This normally has a strong positive effect on the price of Bitcoin because of the lower inflationary pressures in the future. Some analysts are talking about on-chain momentum and how there are several indicators that show traders taking a bullish position on Bitcoin in preparation for this shift in its dynamics.
Contextualizing It All
Finally, it is easy to rationalize the price movements of an asset and be completely incorrect. Sometimes Bitcoin will just be down because the price went down. Its performance is self-evident and any guesses as to why it moved that way are completely by chance.
With all of this, we believe that next year has the chance to be the “year of cryptocurrency” after 2019’s more neutral performance. Even though Bitcoin did reemerge and perform well enough in 2019, it has the chance to do way better in the future.
Although we won’t cross into the “$100k by the end of 2020” zone, we do think this is the year that good things could happen for Bitcoin. Institutional participation continues to improve and the world seems to need a solution to the many flaws currently prevalent in the economic system. With all that in mind, we are expecting Bitcoin to break through its previous all-time highs and hit $35k by the end of 2020. We’ll check back on this at the end of next year to see how we did!