Long term Bitcoin forecast: are digital currencies a window to the future?
17:26, 8 September 2020
The COVID-19 pandemic has prompted central banks to debase their corresponding currencies in an effort to contain the financial fallout caused by the health emergency. The US dollar plunged to its lowest levels since 2018 as the Federal Reserve led the charge by injecting trillions of dollars to the financial system.
At this point, most long term Bitcoin forecasts have been remodeled to incorporate the impact of this new variable and anticipate what the future holds for the cryptocurrency giant.
In this sense, analysts now consider that this unprecedented debasement has probably accelerated a shift towards digital currencies, especially now that inflation fears are emerging in both Main Street and Wall Street.
On the other hand, although forecasts from Bitcoin analysts go from $10,000 per coin to as much as $1m per coin (John McAfee’s prediction – for 2020), they all share a common ground and that is that they point in the same direction: up.
However, are there enough merits to maintain a bullish outlook on Bitcoin? Let’s see what the fundamentals and the charts say to draft a plausible long term Bitcoin forecast.
Bitcoin (BTC) performance in 2020
The value of Bitcoin against the US dollar has surged 67.5 per cent so far this year despite the plunge that the cryptocurrency saw during the broad-market sell-off triggered by the pandemic between late February and March.
However, BTC has surged against the greenback 182 per cent since its March lows of $4,190 per coin and it was trading at $11,835 per coin at the start of September, after a rally that had been primarily fueled by investors seeking to protect their wealth against a potential rise in inflation rates.
Most of the cryptocurrencies have followed Bitcoin’s path, although none of its peers has the credibility and popularity that the mighty BTC currently enjoys, which creates a potential performance gap – at least in the long run.
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What’s driving the price of Bitcoin (BTC)?
There are multiple variables providing support to this Bitcoin (BTC) rally and one has to factor them all in to draft a long term forecast for Bitcoin.
The following is a list of some of the elements playing in favour of Bitcoin’s valuation at the moment.
The effects of expansionary monetary policy
Central banks have been printing massive amounts of inorganic currency to provide support to their domestic financial systems. The Federal Reserve has been leading this effort, which has resulted in growing fears about the consequences of this expansionary policy including a spike in inflation rates and negative interest rates, both of which result in a drop in the purchasing power of the US dollar.
This policy has weakened the dollar’s stand as the world’s currency of reserve and has sent the value of the greenback in a downward spiral. This has in turn caused the value of Bitcoin against the North American currency to automatically rise, which in turn increases the bullishness of long term Bitcoin predictions.
Rampant levels of speculative trading
Speculative trading has been increasing during the pandemic as sports and other entertaining activities have been shut down, forcing those who have been staying at home to find a way to entertain themselves.
Retail investors have found in the financial markets an activity to learn, gain, and enjoy by investing money into stocks, ETFs, and cryptocurrencies – including Bitcoin – which has resulted in higher levels of market volatility and speculative behavior.
Due to the inherently volatile nature of Bitcoin (BTC) and its appeal to the millennial generation, the cryptocurrency has become a target for retail investors. They have poured millions into BTC, seeing its potential to deliver positive returns in the future in an environment such as the one we are in right now.
The presence of this retail money is another element weighing on a bullish long term Bitcoin price forecast.
Technical setup
Bitcoin’s recent jump above the $10,000 mark comes after three separate attempts – one before the pandemic stroked and then another two after – to cross that psychological resistance.
The chart above shows that an ascending triangle has been forming as a result of these failed attempts along with Bitcoin’s uptrend. The latest price action eventually broke above the triangle’s upper trend line in late July, prompting a surge to the $12,000 level.
This break was accompanied by a higher high in the RSI which is an indicative that a new uptrend is forming, although BTC has struggled to remain above the $12,000 mark lately.
Bitcoin price forecast: what will bitcoin be worth in 2021?
Based on the current technical setup and the fundamentals providing support to Bitcoin’s bullish outlook, a plausible Bitcoin price forecast could see the coin rising to the $14,000 by year’s end if it manages to remain within the uptrend it is currently riding.
On the other hand, the prospects for Bitcoin in 2021 continue to be bullish as long as the current fiat currency debasement trend persists.
However, there is one element that should be taken into account and that is Bitcoin’s sensitivity to broad-market sentiment shifts.
In this regard, Bitcoin’s supporters seem to be relying on the cryptocurrency’s ability to be uncorrelated with the financial markets, which is a thesis that did not hold up quite well during the February-March meltdown.
During those days, Bitcoin’s value behaved quite similarly to the rest of the asset classes. This means that in case of another systemic crash such as the one seen back then, Bitcoin’s resilience and perceived status as a store of value could be put to test again.
Failing to remain steady during a situation of turmoil in the financial markets would reduce Bitcoin’s credibility as a plausible substitute to fiat currencies and could therefore trigger a sell-off.
This, in my view, is a risk factor to keep an eye on in the next few months, especially now that certain indices have managed to climb above their pre-pandemic levels and have actually surged to all-time highs during one of the most complex economic environments in modern history.
Stay tuned to the latest cryptomarket news, which can drive Bitcoin price movement.