This recent race to the crypto market is often compared to the uphill race of 2017. With data so limited to these price levels, we can only compare the current situation to that of three years ago – but what is different this time and what will happen in the crypto market in 2021?1. Exhaustion of the Bitcoin supply
As Bitcoin approaches its 12th anniversary, on January 3, some analysts warn of Bitcoin’s lack of circulation. Pantera Capital claims that since PayPal announced its entry into the bitcoin market, the payments giant has purchased 70% of all newly issued bitcoins.
This could have a huge impact on the liquidity of the asset, depending on how PayPal and other large investors who buy BTC use their coins. In the case of PayPal, it can be assumed that PayPal plans to need a lot of Bitcoins to meet the demand of its users in the future.
However, large investment firms might be looking to buy all the Bitcoin they can and hodler it in the long run.
A restriction in supply will likely lead to an increase in demand and therefore push Bitcoin to higher prices, and we could see the beginning of these movements in 2021.2. A new season for altcoins
The year 2020 could be called, among many other things, the DeFi year – due to the plethora of DeFi projects that have seen huge price increases over the course of the year.
Graph showing DeFi TVL (total locked value) in 2020
With year-end shaping up to be a record year for Bitcoin, some predict that investors will sell some of their Bitcoins when we see prolonged side action to invest in altcoins to diversify their crypto holdings.
The explosion of liquidity in altcoin projects will likely give some undervalued coins a huge price explosion. This is a good thing for crypto investors who can make a profit, but even more so for project developers who can use these raises to fund their projects, making altcoins an important and healthy part of the development of the cryptocurrency industry.
2021 will likely see a number of altcoins follow in Bitcoin’s wake. But how do you know which ones will be booming and which ones will stay flat without ever taking off? For this, I recommend Nik Patel’s blog, where you will find excellent resources for the selection of altcoins.3. The Bitcoin boom following halving
Last May, Bitcoin experienced its third halving, which halved the overall reward for miners. When these events occur, there is usually a lot of speculation about how the market will react in the immediate future, but what is much more telling is the date of the relative historical highs (HTAs) that follow these events.
As can be seen in the table below, new highs tend to arrive in December of the year following the halving. If this trend is to continue, investors will likely look to accumulate Bitcoins by this time next year, in December 2021, to maximize their profits.
The other thing to consider in this light is that Bitcoin could spend much of 2021 accumulating and building on higher lows so that it can make the jump to the $50,000 price that many analysts predict at the end of the year.
Image from Fitzner Blockchain’s blog on Medium4. More financial experts enter the crypto space
In recent months, institutional investors have rushed to put money in Bitcoin, such as Square and Greyscale, and PayPal has announced the integration of cryptocurrencies into the payment platform.
Many expect this trend to continue next year, with the latest being Ray Dalio. The billionaire was doing an AMA Reddit (ask me anything) when the topic of Bitcoin came up.
Ray Dalio wrote: “I think Bitcoin (and some other digital currencies) has established itself over the past decade as an interesting alternative to gold, with similarities and differences with gold and other mobile wealth reserves (unlike real estate) with limited supply. It could therefore serve as a diversification for gold and other such wealth assets.”
This is in stark contrast to Dalio’s previous comments on Bitcoin, when he was very critical of the cryptocurrency. In 2021, billionaires and larger hedge fund managers like Dalio could start softening their position on cryptocurrencies as they begin to see the benefits of adding certain digital assets to their portfolios.
The news will likely come in the form of these people announcing that they have accumulated a stake in Bitcoin in the hope of encouraging others to enter the market to improve their positions.
Overall, 2021 will be an exciting year for cryptocurrency markets where we hope to see greater adoption and understanding of how cryptocurrencies can bring benefits to people’s lives.