Bitcoin has been in rally mode since last year and is constantly reaching new heights. Experts are currently outbidding each other again with forecasts of how high bitcoin could still rise this year – Bloomberg also sees great upside potential.
- Bloomberg analysts bullish for Bitcoin
- Low volatility, halving and bitcoin adoption supportive
- Rise in bond yields less headwind for bitcoin than gold
Bitcoin rallied 300 percent last year to around $29,000. This year, the bull run continues: in 2021, the popular cryptocurrency has already gained around 120 percent and is currently trading at over 63,600 U.S. dollars (as of April 15, 2021).
But how high can the rally carry the bitcoin this year?
Bloomberg: Bitcoin can climb to 400,000 US dollars. Analysts from Bloomberg are very confident about the further development of Bitcoin this year. In their crypto outlook from early April, the experts write that the oldest and most well-known cryptocurrency could rise to $400,000 in 2021. The experts’ bullish forecast is based on bitcoin’s previous bull runs in 2013 and 2017, when the digital coin’s price reached new heights. “To reach price extremes like those years in 2021, the cryptocurrency would approach $400,000, based on the regression since the 2011 high,” the Bloomberg analysts said in their crypto outlook.
Parallels to 2013 and 2017
According to the experts, support was provided by two main factors: low volatility and bitcoin halving. What 2021 has in common with 2013 and 2017 is that they all follow a bitcoin halving event year. Halving, or halving the reward on the Bitcoin blockchain, occurs every four years, including 2012, 2016, and 2020. After the November 2012 and July 2016 halvings, Bitcoin saw strong gains in the following year to year and a half. And the recent bitcoin rally also follows a halving event that took place in May 2020. Besides that, the cryptocurrency’s 180-day volatility in September was about the same as its all-time low in October 2015, analysts said.
In addition to low volatility and bitcoin halving over the past year, bitcoin adoption, which analysts believe is likely to accelerate, also underpins the bitcoin price for the foreseeable future. Visa, Goldman Sachs and Morgan Stanley have embraced the digitization of money, which is fueling the process of Bitcoin replacing gold as the global reserve currency, according to Bloomberg. The imminent launch of Bitcoin-focused U.S. ETFs is another bullish underpinning, they said.
No drag from rise in bond yields
While some observers worry that a faster rise in bond yields could negatively impact inflation hedges like gold and bitcoin, causing prices to fall, Bloomberg experts are confident, at least for bitcoin: “Gold is waging a battle with bitcoin, which can earn 6 percent to 8 percent in crypto savings accounts and is on track to become a global reserve currency in a digital world. Rising bond yields are headwinds for gold prices, but less so for Bitcoin, which is still in its price discovery phase.”
Bitcoin replacing gold is happening suddenly rather than gradually, according to Bloomberg. The adage that money flows where it is treated well best describes what they see as a firming foundation for Bitcoin’s price, according to the analysts. That’s not necessarily bearish for gold, “but most indicators show a shifting global tide favoring the emerging digital currency as a reserve currency,” Bloomberg said.
Which benefits of bitcoin are underestimated
Analyst Lyn Alden points to a strong network effect and thinks comparisons to credit card payments are misguided.
Bitcoin seems to be stabilizing just at the level of about $60,000, not far from its record high of just over $61,000 in mid-March. Increasingly, established money houses such as Goldman Sachs are speaking out on the issue. The latter’s chief executive David Solomon recently told CNBC television that he expects an “evolution” around Bitcoin.
At the same time, he suggested that banks are being prevented from getting deeper into this business by requirements imposed by financial regulators. The cryptocurrency is being discussed primarily as an investment and speculative asset.
Lyn Alden, an independent financial analyst in the U.S., on the other hand, has taken a closer look at the original purpose of bitcoin: payment. In doing so, she comes across strengths of bitcoin that are easily overlooked amid the hoopla surrounding its high prices. In her view, a strong network effect speaks in favor of the cryptocurrency. Moreover, in her opinion, the network’s performance is also often underestimated and misrepresented.
In a study, Alden also deals intensively with network effects using historical examples. She explores the question of why Facebook, for example, has prevailed over competitors such as Google+ and why, conversely, Deutsche Post has not achieved a breakthrough with DHL in the USA.
It turns out time and again that once a network is dominant, it is difficult for competitors to crack it, unless there is a fundamental innovation. In their view, the only competitor in the crypto space with a significant network effect is Ethereum.
However, this system is less decentralized than Bitcoin and thus has a weaker appeal to people who are just looking for a currency that is purely technically based with as little human influence as possible.
Another great possibility that bitcoins offer and which are still very underestimated at the moment are peer-to-peer lending sites.
As secure as Wikipedia
The analyst points out that the network effect is nevertheless not primarily based on the technical design, but on the members. She draws a comparison with Wikipedia: The software there would be easy to imitate, and the data could easily be copied with today’s storage technology.
But the network is stable because it relies on authors and users. “Likewise, someone could copy the Bitcoin blockchain and squeeze it into their own design,” she writes. “But would they succeed in convincing the majority of miners, nodes (which make up the network) and users that this fork is now the ‘real’ Bitcoin? So far, no one has tried.”
The second issue is the performance of the payment network. On this, Alden notes, “If you compare Bitcoin payments to Visa payments, you’re comparing apples to oranges. Or, to be precise, it’s like comparing an apple wholesaler to an apple vendor.”
That’s because bitcoin, she points out, ensures a final payment, comparable to an equivalent process on a central bank’s network. Visa, on the other hand, moves credit money around, the argument goes, and the final payment then takes place only between banks via the central bank’s network.
Hope for Lightning
Indeed, a common comparison is that Visa can process more than 40,000 payments per second, while the Bitcoin system can process only seven. But Alden sees Bitcoin as more of a base currency for large transactions.
She compares credit card transactions to those on the so-called Lightning network, which has been in place since 2015 and is designed to greatly expand the number of transactions and is effectively a type of credit money.
It is built up from initially two-party relationships between recipients and payers, who grant each other credit, which can then be used indirectly for more far-reaching transactions. The basis for the balance settlement is bitcoin. With Lightning, however, a similar capacity as in the traditional channels is by no means yet available.
Nevertheless, price is likely to be the primary consideration for many users. Analysts from JP Morgan have developed an analysis model with which they compare Bitcoin and gold. In doing so, they assume that the cryptocurrency could become something like the precious metal of the young generation if the fluctuation of prices decreases in the long run, which seems to be indicated recently.
Depending on the price of gold, the U.S. bank thus arrives at theoretically possible prices of 130,000 to more 140,000 dollars. This is based on the idea that, as a store of value, it could achieve a volume similar to that of gold, but at the same time, by its technical design, it cannot be multiplied at will.
This also shows that bitcoin’s relatively rigid design, which prevents it from moving away from the system’s energy-intensive technology, can also be seen as a strength from an investment perspective.