Cryptocurrencies are making a staggering comeback in 2021, following a very successful recovery over the past year. At the moment of this writing, we see glimpses of what seems to be like a strong “altseason” as DeFi projects and projects that strengthen them fundamentally are increasing in value.
But is this climb sustainable? What external factors could affect the survival and success of popular cryptocurrencies and what is our prognosis for this year?
In this article we share some of our thoughts and outline the reasons behind the massive amounts of people that choose to buy Bitcoin at its near-peak prices. Let’s delve in.
Cryptocurrency trends for 2021
We have already determined that, based on historical data, this year should be very positive for the growth of crypto, as well as its applications in the real world. This is further broken down into specific trends that are currently building up. Let’s discuss them briefly.
- Institutional adoption will grow further – Earlier in 2020 we saw a growing interest of large-scale institutional investors buying Bitcoin with their cash reserves. This started with MicroStrategy, a public software development company, allocating 100% of their cash to BTC, and Square allocating $50 million. The trend continues to build up steadily.
- More points of exposure – Large payment systems across the globe now support Bitcoin purchases in the form of an ETF which they can hold as an investment vehicle. More specifically, CashApp and Paypal both announced their support for a number of different cryptocurrencies in the final quarter of 2020. We expect this trend to continue.
- Bitcoin supply issues – As more demand from institutional investors and large buyers continues to increase, we see a small number of buyers acquiring more Bitcoin than the daily minted supply. We expect this trend to grow to a point during which Bitcoin will be removed from exchanges and will no longer be traded publicly. This so-called supply shock (or shortage) will affect the price of Bitcoin positively.
- Global regulations will tighten – Governments try to fight what they cannot understand. And when it comes to Bitcoin, this can become a real threat. We are already seeing the US government planning regulatory frameworks that will limit the usage and tradability of Bitcoin, emphasizing the complete eradication of its pseudo anonymity.
- DeFi will continue to grow – DeFi projects have locked a total of $14 Billion at the time of this writing. This is a minuscule share of the total crypto market cap, which exceeds $1 Trillion. Yet, it is the most usable and technologically important development in the industry. Hence, we expect to see both the $$ locked in smart contracts and the cryptocurrencies related to these projects grow over the year.
- Crypto options will grow significantly – In 2019 and 2020 we got introduced to a wide range of derivative products, which can now be used by all users of popular trading platforms. With a raging bull market under way, we expect more people to make use of them in hopes of increasing their profits and thus the amount of exposure they hold in BTC.
The Bitcoin halving is one of the best indicators
Aside from the trends discussed above, we are also seeing the market cycles of Bitcoin unfold identically to historical patterns. Most investors find the Bitcoin halving to be the indicator that determines this direction, as the price always follows an upward momentum approximately 16-18 months post halving.
At the moment, we are crossing the 8th month post halving, and Bitcoin has already broken its long-lasting ATH price. We expect to see the price of Bitcoin, and thus of the crypto markets, accelerate rapidly towards the summer of 2021.
Where is the market headed?
We now have a number of positive indicators that project a good year for the crypto industry. Not only are we seeing many crypto-friendly politicians taking places of power, but we are also seeing a strong willingness from states and countries to participate in the adoption of cryptocurrency.
Countries like Iran, Pakistan, Venezuela, and Russia are already using their energy reserves to mine Bitcoin in order to increase their exposure to the asset.
At the same time, the mayor of Miami, Francis Suarez, is considering a partial treasury reserve allocation towards BTC, making Miami the first US state to do so. Of course, things are still under discussion.
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Overall, we find 2021 to be an exciting year for the future of cryptocurrencies, and we do not shut out the possibility of the market reaching a $5 Trillion valuation. However, there are many variables that will affect how we get there, and which cryptocurrencies will end up being the big winners of the race.