01st Dec 2020

Here’s Why Bitcoin Could Cross $20,000 in Early 2021

Article Table of Contents:

Breaking the Resistance Level
Inflation and Safe Haven Assets
Use as a Means of Payment
Squeezing the Supply

It has been an incredible year for the king of cryptos, Bitcoin. After facing a few hiccups in the early months of 2020, the virtual currency has held on to an upward trajectory. At a time when fiat currencies are being viewed with scepticism, Bitcoin is even being eyed as a hedge against inflation.

In March 2020, Bitcoin was at a low of $4,913. But it has gained considerably since then. By July, the blockchain-based currency had breached the $10,000 mark. The momentum continued and by the start of December, Bitcoin had crossed it 2017 record high, declined slightly and was trading at $19,382. The price of the virtual currency increased more than three-fold within 8 months. In this period, it managed to outperform multiple major assets, including gold, the US dollar, and even tech stocks.

This momentum is expected to continue for some time. In fact, in the coming months, the virtual coin is expected to breach the $20,000 barrier for the first time in history. Here are some of the reasons why.

Breaking the Resistance Level

The last peak of Bitcoin was in June 2019. At that time, the price of BTC was around $14,000. The crypto faced strong resistance and failed to push higher. If Bitcoin had managed to break through at that time, a bull market might have been triggered.

A similar situation emerged on November 4, 2020. But this time, Bitcoin managed to push past $14,000 and continued further. With there being no other significant resistance points, BTC is expected to continue its ascent. 

Inflation and Safe Haven Assets

The pandemic has had a severe impact on the global economy. In this economic turmoil, central banks are churning out fiat currencies as quickly as they can. Governments are also providing stimulus packages to stave off economic calamities. The United States has already added almost $2.4 trillion to its economy. Plus, an even bigger stimulus package is expected to be on the way.

This influx is expected to increase inflation from around the 2% level experienced over the last few years. With rising inflation the purchasing power of the US dollar would also decrease leading many to invest in Bitcoin as a hedge.

Use as a Means of Payment

Another major reason for the appreciation of Bitcoin’s value has been its adoption as a mainstream means of payment. PayPal recently announced that they would allow their merchants to buy, hold, sell, and accept Bitcoin, as well as other cryptocurrencies, as a means of payment.

PayPal has more than 20 million active merchants, who would now be able to accept virtual currency payments. It also has around 350 million users, who would be able to buy, hold, and use BTC. This drove the price of Bitcoin up.

The news has further implications as well. Venmo, another popular payment app, is also owned by PayPal. There are more than 40 million accounts on Venmo. This makes Bitcoin significantly more accessible. This partnership also helps remove doubts of legitimacy for many.

Squeezing the Supply

Every 4 years, the process of Bitcoin halving takes place. With this, the number of coins received by miners for adding new blocks to the blockchain is halved. The third such event, since the launch of BTC, took place in May 2020. It slashed the mining reward from 12.5 BTC to 6.25 BTC. 

With the supply stream halved, miners put up less coins for sale. This led to a supply shortage, and therefore, a price rise. Some believe that PayPal has also been buying large quantities of BTC.

Grayscale Investments, an asset management company, is also snapping up large quantities of Bitcoin. In November, more than 40,000 Bitcoins, worth over $600 million, were bought by the firm. Around 85,000 BTC, worth almost $695 million, were also bought by Grayscale and CashApp, which is a Square-owned mobile payments service. 

The bullish run of Bitcoin in 2020 has managed to turn many of the doubters into believers. In 2017, JPMorgan’s CEO, Jamie Dimon, had said that Bitcoin was a “fraud.” But in October 2020, the investment bank said that the digital currency was competing solidly with gold. Bitcoin might be on the rise but before investing, be sure to have a solid trading plan in place.
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