Bitcoin: The Story for 2021 and Beyond
To understand the future of Bitcoin, we need to delve a little into its past.
After the 2008 financial crisis, when people lost trust in centralized financial systems, Bitcoin came into existence as a decentralized peer-to-peer digital currency. Gamers were its early adopters, breathing life into it in 2010, and by 2012, the tech world began adopting Bitcoin as a currency too. Ethereum’s first ICO (initial coin offering, worth $73m) in 2014 changed the landscape completely. By 2016, Bitcoin’s value rose after Japan legalised it, aided by “unexpected” world events (Brexit, Trump, and Demonetization in India).
ICOs raised billions of dollars of capital for random idea-stage projects in 2017. However “almost no value” has been delivered till date, as all the projects were centralized and entrepreneurs got their early exits. Institutional participation in Bitcoin and cryptos in 2017, with peak value and exchange listings, led to the highest Bitcoin value of ~$20,000. The boom was followed by a bust, bringing Bitcoin to $4,000 in 2018.
The Covid outbreak reversed the damage and led the Bitcoin value higher. The world’s response to Covid, including massive $ printing by the US, is responsible for this, coupled with increased Bitcoin adoption as a store of value by institutions. With Paypal announcing plans to accept Bitcoin, and finally, US elections with Trump not conceding, the price flared to $17k+ in Nov 2020.
What’s Next? 20 / 20 Foresight for Bitcoin:
Coverage of Bitcoin’s value rise will rise significantly in social, print, and online media. Retail participation will increase, leading to further increased coverage. Pundits will speak about it on CNBC and predict higher and higher valuation. That will push Institutional participation, which will increase due to FOMO (fear of missing out).
However, Bitcoin value is likely to stabilize somewhere, or even go down, as the world gains “stability” in 2021. With Biden finally taking over the US presidency and doing things professionally and ethically, Covid fears being dealt with by vaccines, and subject to no other dramatic screw-ups occurring by governments around the world, 2021 may turn out low-key.
Some Reminders and Basics:
(before discussing why and how much should you invest in Bitcoin)
Bitcoin is as decentralized as it gets. The best thing Satoshi did for Bitcoin was never to come forward.
Though Bitcoin originated as a decentralized digital currency, unfortunately, it’s being used more as a digital asset – a store of value (due to its limited supply) – which works as long as enough people believe in it and crashes when they eventually don’t.
“All” other coins or digital currencies including Ethereum are not as decentralized as bitcoin due to some key people of those communities being in the middle. Hence their values are far away (~80% lower) from their previous peak values.
Government digital currencies are just digital versions of fiat currencies. They are completely centralized, and Governments alone decide how to manage them. So, in principle, they have no relevant similarities with Bitcoin.
If you want to learn the basics of Bitcoin, feel free to read this https://www.amazon.in/Squaring-Blockchain-Circle-Kunal-Nandwani/dp/9388150015/.
Depending upon the level and extent of institutional participation, Bitcoin has a 10% chance of reaching $30k in 2021, as a peak. The defining value, bubble, or store of value will be driven by the institutional interest (1000s of them around the world, with billions of investable assets), having potential to invest lot more; If it works well, Bitcoin has a small probability (~1%) of reaching $100k. It will depend upon how many and how much do these institutional investors participate
There is a 50% chance that Bitcoin will stagnate somewhere between $10k-30k in 2021.
Also, in the worst case, Bitcoin has an 80% chance of surviving the next decade. It has tons of known challenges (inefficient mining process, centralised exposure through exchanges and custody, collective FOMOs’ driving value up and down, pending government regulations, community disputes, big systematic frauds, etc.) and some unknown challenges.
So, You may choose to invest a small percentage of your investable wealth, that in the worst case, you are willing to lose. Do ensure you secure your private key of bitcoin safely and don’t leave it in some centralized exchange.
To put this in perspective:
At $20k, 20 mn bitcoin will be worth $400bn.
There is around $10 trillion of Gold in the world. An asset that has survived centuries and has made up use cases like jewellery too.
Global GDP is around $80 trillion.
Global outstanding debt by Governments is $250+ trillion and increasing as Governments borrow / print more to stimulate Covid economies.