Bitcoin set a new all-time high for the year last month, surpassing $68,000 for the first time. By early December, it had reverted to a value of less than $46,000.
This latest high represents a significant increase in the price of Bitcoin, which began the year below $30,000 in January. Its price fluctuates dramatically throughout the day and even minute. Bitcoin's price has fluctuated between $46,000 and $58,000 this month. Since Sunday, it has remained below $50,000, and at its lowest point this week, it was below $46,000.
Despite the volatility, many experts believe Bitcoin is on the verge of passing the $100,000 mark, though they disagree on the precise timing. Volatility is nothing new, and it is one of the primary reasons why experts advise new crypto investors to exercise extreme caution when allocating a portion of their portfolio to cryptocurrency.
Bitcoin's value has risen at a similar rate to that of any other cryptocurrency on the market over the years. It's only natural for Bitcoin investors to be curious about the ultimate potential of the currency.
Regrettably, Bitcoin's price is extremely difficult to forecast and even more volatile than the prices of more established asset classes. Nonetheless, we decided to poll some experts for their best guesses. What they said was as follows:
Bitcoin, according to conservative predictions, will reach $100,000 by 2023.
Certain experts are more optimistic. "The most knowledgeable educators in the space predict that Bitcoin will reach $100,000 in Q1 2022 or sooner," says Kate Waltman, a certified public accountant specialising in cryptocurrency based in New York.
Others are hesitant to forecast a specific number or date, preferring to focus on the trend of increasing value over time. Investors should anticipate a "fairly sustainable" long-term increase in Bitcoin's value driven by organic market movement, with the $100,000 threshold in sight, Jurrien Timmer, director of global macro at Fidelity Investments, predicted last month.
"What I anticipate from Bitcoin is short-term volatility and long-term growth," says Kiana Danial, founder of Invest Diva and author of "Cryptocurrency Investing For Dummies."
Unsurprisingly, well-known cryptocurrency investors, evangelists, and public commentators all have widely divergent views and predictions on how high Bitcoin can go (and when). Here are some additional predictions for the coming year, ranked from low to high:
* Point of View: Bitcoin investor and founder of Token Metrics, a cryptocurrency research and media company.
* Forecast: $75,000 by the end of 2021.
* Why: While technical data indicates that $100,000 is not out of the question, Balina told NextAdvisor that he prefers a more conservative approach.
* Point of View: From a technical analysis and blockchain data analyst's perspective.
* Forecast: $250,000 by January 2022.
Why: According to Hyland's Twitter account, Bitcoin's inevitable crossing of the $100,000 mark will catalyse a euphoric bull run. Hyland cited the 150 percent increase in Bitcoin from $8,000 to $20,000 shortly after Thanksgiving in 2017.
* Point of View: Founder and CEO of Parallax Digital, a digital asset marketing and consulting firm.
* Forecast: $307,000 by October 2021 (which has already passed), and $12.5 million by 2031.
* Why: Inflationary pressures following COVID-19 will increase interest in cryptocurrency, causing the price of Bitcoin to rise above previous projections. Breedlove also noted in an interview earlier this year that the final quarter of 2021 is approximately 510 days after a process known as "halving," in which Bitcoin's algorithm changes the reward for mining transactions on the blockchain. Breedlove noted that previous halving events were followed by new highs approximately 500 days later.
And it isn't just cryptocurrency insiders who make Bitcoin forecasts. Large financial institutions have also made their own projections, with JPMorgan forecasting a long-term high of $146,000 and Bloomberg forecasting it could reach $400,000 by 2022.
What Factors Affect Bitcoin's Price
The same economic factors that affect the price of any other currency or investment also affect the price of cryptocurrency — supply and demand, public sentiment, the news cycle, market events, scarcity, and more.
As a new and emerging asset, Bitcoin's value is influenced by additional factors than the value of a traditional currency or security. Here are a few examples:
There are currently between 18 and 19 million Bitcoins in circulation, and mining will cease at 21 million. Consistently, industry experts point to this inherent scarcity as a significant part of cryptocurrency's appeal.
"There is a finite supply but an increasing demand," says Alexis Johnson, president of Light Node Media, a blockchain public relations and events firm.
According to other experts, Bitcoin has value because people value it. "That is truly why everyone is buying — for the psychological aspect," says Nelson Merchan, co-founder of Johnson's Light Node Media. This can make it difficult for the average consumer to determine the legitimacy of Bitcoin and other cryptocurrencies. Supply and demand as a concept only works when people desire something scarce — even if it previously did not exist.
"It almost appears to be a scam," Merchan says of Bitcoin's origins. Though he claims to have seen his cryptocurrency holdings reach millions of dollars at times since he began investing in 2017, he also claims to have witnessed them vanish in an instant.
"I'm a firm believer that if you don't have it in cash, you don't really have it, because anything can drop dramatically overnight in crypto," Merchan says. This is why certified financial planners recommend allocating no more than 1% to 5% of your portfolio to cryptocurrency — to protect your capital from volatility.
One of the primary drivers of Bitcoin's price increase, according to Waltman, is the rate at which new consumers are purchasing and exploring cryptocurrency.
"Crypto technology is gaining traction at a faster rate than humans did when the internet was first invented," she says. If this trend continues, the compounding acceleration of new adoption could continue to drive the value of Bitcoin upward.
According to data from the digital asset management firm CoinShares, bitcoin adoption has been growing at a 113 percent annual rate. (In the meantime, people adopted the internet at a 63 percent slower rate.) If people adopt Bitcoin at the same rate as they did in the early days of the internet (or faster), the report asserts that there will be 1 billion users by 2024 and 4 billion users by 2030.
According to CoinDesk, the number of new wallets globally increased by 45 percent between January 2020 and January 2021, to an estimated 66 million. Coinbase, a popular cryptocurrency exchange, recently announced that it has surpassed 73 million global users, while fellow exchange Gemini recently released its "State of US Crypto Report," which revealed that 21.2 million Americans own some form of cryptocurrency.
Federal officials have made it abundantly clear in recent months that they are monitoring the cryptocurrency industry. President Joe Biden recently signed an infrastructure bill requiring all cryptocurrency exchanges to report their transactions to the Internal Revenue Service. Similarly, Treasury Secretary Janet Yellen recently stated that stablecoins — a type of cryptocurrency linked to the US dollar — should be regulated by the federal government.
The regulatory policy conversation is "patchy," according to an industry white paper published by Flourish, a fintech platform for investment advisors. With a relatively new asset class such as cryptocurrency, any new regulation has the potential to affect its value and, consequently, investors' portfolios.
When China banned cryptocurrency in September 2021, for example, investors saw Bitcoin's price plummet, though it has since recovered and resumed its normal volatility. Despite the fact that Bitcoin now has nearly a decade of precedent, the Securities and Exchange Commission is proceeding cautiously in what experts refer to as its "crawl, walk, run" strategy towards mainstream crypto adoption.
"Over the last five years, regulation has evolved," says Ben Cruikshank, CEO of Flourish. "Regulators can always change their minds."
Finally, another significant factor affecting the price of Bitcoin is a cycle known as halving. Although it is complicated and algorithmic in nature, halving is a step in the Bitcoin mining process that results in a halving of the reward for mining Bitcoin transactions.
The rate at which new coins enter circulation is influenced by the halving, which can have an effect on the value of existing Bitcoin holdings. In the past, halvings have been associated with boom and bust cycles. Certain experts attempt to forecast these cycles down to the day following a halving event.
What Investors Should Understand About Bitcoin Price Forecasts
As with any investment, financial planners and other experts advise against being swayed by Bitcoin's price fluctuations. Investors who make regular contributions to passive index funds and ETFs outperform the market over time, owing to a strategy called dollar cost averaging.
That is why experts recommend investing no more than 5% of your total portfolio in cryptocurrency and never investing at the expense of emergency savings and debt repayment. The path to long-term wealth and retirement savings is most often successful for individuals who invest in diversified assets such as low-cost index funds, with crypto accounting for a very small portion.
Even with crypto, experts believe that a set-it-and-forget-it strategy makes sense. "Passive investing is a very viable strategy for achieving financial goals," says Sarah Catherine Gutierrez, a certified financial planner based in Arkansas.
Given that the majority of people are still unfamiliar with cryptocurrency, it's acceptable to wait and see how events unfold before putting your money on the line. We only have about a decade of data on which to base crypto price predictions, and the value of Bitcoin — while steadily increasing over time — is extremely volatile on a daily basis.
Volatility obscures the "what" and "why" of your crypto strategy. Before investing in Bitcoin or any other alternative asset, consider your objectives and motivations for participating in this highly volatile market. This will assist you in remaining focused.
"I believe that the general public does not understand how to value Bitcoin," Gutierrez says. "When you purchase something, you must have an expectation of the value you will receive."
Financial planners, according to Gutierrez, do not have an anti-cryptocurrency bias, particularly if a client expresses an interest in learning more about it. However, you should consider whether you require cryptocurrency as part of your strategy. Generally, Gutierrez asserts, the answer is no.
"Our view is that you do not need Bitcoin to achieve financial goals," she says, adding that the average investor should prefer straightforward methods of investing. This will help you stay on track with your core financial goals and position you for a healthy retirement in the long run.
