This recent run for the crypto market is often compared to the bull run of 2017. With such limited data at these price points, we can only compare the current situation to what was seen three years ago — but what’s different this time and what will happen in the crypto market in 2021?
1. Drying up Bitcoin supply
As Bitcoin approaches its 12th birthday on 3 January, some analysts are warning of a lack of circulating Bitcoin. Pantera Capital claims that since PayPal announced it was entering the Bitcoin market, the payment giant has been buying up 70% of all newly minted Bitcoin.
This could have a huge impact on the liquidity of the asset depending on how PayPal and other big investors buying up BTC use their coins. In the case of PayPal, one could assume that PayPal anticipates needing a lot of Bitcoin to meet the demand of its users further down the road.
However, large investment firms could be looking to buy up all the Bitcoin they can and hodl for the long term.
A restriction on the supply will likely drive up demand and therefore push Bitcoin to higher prices and we could see the beginnings of this price action in 2021.
2. A new alt season
2020 could be called, along with many other things, the year of DeFi — owing to the plethora of DeFi projects that saw huge price appreciations over the course of the year.
Chart showing DeFi TVL (total-value-locked) in 2020
With Bitcoin looking like it will end the year in all-time high territory, some are predicting that investors will sell off some of their Bitcoin when we see some extended sideways action to invest in altcoins to diversify their crypto holdings.
This liquidity burst into altcoin projects will likely give some undervalued coins huge price explosions. This is great for crypto investors who are able to turn a profit, but more so for project developers who are able to use these pumps to fund their projects, making alt seasons an important and healthy part of development for the cryptocurrency industry.
2021 will likely see a number of altcoins follow in Bitcoin’s wake. But how can you make a price prediction to know which ones will boom and which will just flatline and never get off the ground? For this I would recommend Nik Patel’s blog where you can find great resources for altcoin selection.
3. Bitcoin post halving boom
Back in May, Bitcoin had its third halving, whereby the block reward for miners was halved. When these events happen there’s usually a great deal of speculation on how the market will respond in the immediate aftermath, however what is far more telling is the date of relative all time highs (ATH) that follow these events.
As can be seen in the table below, new highs tend to arrive in the December of the year after the halving has taken place. So if this trend is to continue, then investors will likely be looking to accumulate Bitcoin from now until this time next year, in December 2021, to maximise their profits.
The other thing to consider with this in mind is that Bitcoin could spend much of 2021 accumulating and building higher lows so it can make the leap to the $50,000 price that many analysts are predicting at the end of the year.
Image taken from Fitzner Blockchain blog on Medium
4. More financial experts entering the crypto space
In recent months there has been a rush of institutional investors putting money into Bitcoin, such as Square and Greyscale, as well as PayPal announcing the integration of cryptocurrencies to the payment platform.
This trend is expected by many to continue into next year, with the most recent being Ray Dalio. The billionaire was doing a Reddit AMA (ask me anything) when the topic of Bitcoin was raised.
Dalio wrote: “I think that Bitcoin (and some other digital currencies) have over the last ten years established themselves as interesting gold-like asset alternatives, with similarities and differences to gold and other limited-supply, mobile (unlike real estate) storeholds of wealth. So it could serve as a diversifier to gold and other such storehold of wealth assets.”
This is in stark contrast to Dalio’s previous comments on Bitcoin when he was very critical of the cryptocurrency. 2021 could see more prominent billionaires and hedge fund managers such as Dalio begin to soften their stance on cryptocurrencies as they begin to see the benefits of adding some digital assets to their portfolios.
The news will likely come in the form of these individuals announcing they have accumulated a stake in Bitcoin in the hopes of encouraging others to enter the market to improve their positions.
All in all, 2021 will be an exciting year for cryptocurrency markets where we will hope to see wider adoption and understanding of how cryptocurrencies can bring benefits to people’s lives.