Already one of 2020’s best-performing assets, the price of the world’s largest cryptocurrency by market capitalisation could rise to $20,000 before the end of the year, according to analysts. To date, the price of Bitcoin is already 30% up from the start of the year, following wider positive investor sentiment, with the cryptocurrency’s price volatility hitting a three-month low at the time of writing, with 30-day volatility falling to 40% – the lowest level since 6th March. Furthermore, 60-day volatility declined to 52.18% – the lowest level since 11th March. However, I believe that the leading cryptocurrency will likely increase further in value throughout the remainder of the year due to three principal factors.
Central banks around the world are launching massive quantitative easing programmes.
This large-scale money printing devalues traditional currencies, yet bolsters other recognised stores of value, such as the likes of Bitcoin and gold.
In the United States, should the Federal Reserve decide to drop the interest rate below zero in the near future – a move which is “inevitable”, according to Bankrate’s Chief Financial Analyst Greg McBride – this will drive the value of digital currencies such as Bitcoin skywards, according to many market strategists and economists. Paul Tudor Jones, the billionaire founder of the hedge fund Tudor Investment echoes this sentiment: “Bitcoin reminds me of gold when I first got into the business in 1976. If I am forced to forecast, my bet is [the best asset] will be Bitcoin.”
The coronavirus pandemic has dramatically accelerated the demand and need for digital currencies.
The Federal Reserve is doing “whatever it can” to shore up the wavering US economy impacted by the COVID-19 crisis and has already released trillions of dollars in stimulus to do this.
Renowned cryptocurrency investor and Chief Executive of Bitcoin hedge fund Galaxy Digital Mike Novogratz previously told CNBC: “If there was ever a time-debasement of fiat currencies, monetisation of trillions of dollars of debt, this is the time for Bitcoin.” Novogratz added: “If at the end of the year Bitcoin’s not a lot higher, I’m going to scratch my head and say: ‘Look, what the heck is going on?’”
Indeed, the Fed’s “do whatever it takes” attitude in terms of what it called “quantitative easing to infinity” could ultimately undermine confidence in the traditional financial system, leading more and more investors to contemplate decentralised, non-sovereign cryptocurrencies.
Bitcoin is a legitimate hedge against inflation concerns over the longer-term.
Bitcoin derives its value from speculative interest as a hedge, coupled with deflationary, controlled money supply. The cryptocurrency is capped at 21 million Bitcoins, so at some point, there will be fewer Bitcoins available than demand requires, so in value terms, the price will increase as the supply decreases.
Influential Bitcoin trader and well-known Bitcoin bull Tim Draper believes that an increasing number of people will now look to Bitcoin as it has a fixed supply, unlike billions in fiat currency that is being printed by banks around the world. He stated: “This is going to be a really interesting time where people say ‘well, why don’t I just use Bitcoin?’. I know there are only 21 million of them and we don’t have to worry about whether a government is diluting their currency by printing tons of it, we can instead just use a currency we all agree on and it’s all a part of the economy and it’s already frictionless and open, and transparent, and global.”
Geopolitical factors such as the escalating US-Sino tensions, the US presidential election and Brexit will also likely bolster Bitcoin.
Draper also added that he thinks digital financial innovations such as Bitcoin, AI and smart contracts will result in governments competing at “virtual level” to offer improved services at “lower cost” to attract talent. This will consequently offer people more choice and freedom: “It doesn’t matter whether you are from the US, China or Russia, or India, or Europe, or whatever, we are an open world and then the geographic borders are going to mean less and less.”
Moreover, global client interest in Bitcoin and other digital currencies has soared over the past month alone. There has been a 25% month-on-month rise in enquiries for deVere’s crypto exchange app, deVere Crypto. This is mainly down to the fact that the coronavirus crisis has led to a collective focusing of minds on the need to adapt and become accustomed to a so-called new normal.
Of course, our lives will inevitably become ever-more fuelled by technology, particularly our financial lives. As such, cryptocurrencies such as Bitcoin, as well as other FinTech solutions, will play an ever more prominent role.
Geopolitical factors such as the escalating US-Sino tensions, the US presidential election and Brexit will also likely bolster Bitcoin. Indeed, investors will increase their exposure to digital currencies such as Bitcoin, to help protect them from the potential issues within the traditional markets. Combined with the fact that Bitcoin and other cryptocurrencies are digital and global, and the world is becoming increasingly digitalised and globalised; that demographic trends are on its side; and that institutional investors, central banks and major corporations are all coming off the sidelines, the long-term trajectory is inevitably upwards.