Will the Bitcoin Price Rally last this time?

The recent Bitcoin price rally (BTCUSD) has left investors with an important question: Will the rally last?

The quicksilver nature of cryptocurrency markets makes it difficult to answer that question clearly. The Bitcoin rally in 2017 transitioned to a protracted fall less than a year later. While analysts and commentators have stepped up with optimistic predictions, it is far from certain whether Bitcoin’s price will continue to rise.

A Trillion Dollar Target?

The risky foundations of cryptocurrency markets will appeal to traders and investors in 2021, according to analysts from Bloomberg. “A risk-free decline like the 1Q could return Bitcoin toward the $ 10,000 support level in 2021, but we believe the path of least resistance remains higher,” the analysts wrote. In simple words, investors will continue to embrace the risk and price volatility inherent as Bitcoin invests in 2021.

Bloomberg analysts have predicted a $ 50,000 price target for Bitcoin, suggesting a $ 1 trillion market cap for the cryptocurrency. They cite growing demand for the cryptocurrency, adoption and mainstream interest, and reduced supply as Bitcoin reaches its 21 million supply target as reasons for their estimated price.

BTIG analyst Julian Emanuel has estimated a similar figure for the price of the cryptocurrency next year. But his reasoning is different. Emanuel compared the price of Bitcoin to the Nasdaq 100 (NDX), a market-weighted index that includes 103 non-financial companies in Nasdaq. The index reached a peak valuation during the dotcom bubble and crashed shortly thereafter before another gradual ascent began.

“NDX took 14 years to rise above its parabolic ‘blow head’, then six years to rise another 150%. Bitcoin seems poised to surpass parabolic ‘blow head’ 2017 in just three years. Should speed Bitcoin’s rise kept pace over the last three years and roughly racked up the rate with NDX, $ 50,000 per Bitcoin is a reasonable price target at the end of the year 2021, “Emanuel wrote.

New Future or Redux False Rally?

Momentum can be a powerful price driver. The actions of one investor can motivate others, who don’t know much or better, to follow them into a trade.

The price target predictions for Bitcoin bring back memories of 2017, when equally ambitious (and out of the country in some cases) predictions were made for the future of Bitcoin. Back then, the astronomical prices of the cryptocurrency dropped as fast as they had risen, leaving a trail of disappointed investors and closed investment companies.

But the conditions were different. Asian investors and retail traders have been reported to have driven the previous rise of Bitcoin prices. They quickly moved in and out of trades, booked profits, and left crypto markets shortly thereafter. This move sucked much needed liquidity from crypto markets and shattered asset prices.

According to the crypto-forensics company Chainalysis, the rally is being driven by American investors this time. Institutional firms and hedge funds, which are interested in parking their funds for the long term, are also beginning to pour money into the asset class. In the long run, such liquidity should help drive future price rises as it strengthens the market and interferes with the intense volatility that has characterized crypto markets.

If history is any indication, the COVID-19 pandemic may also have proven to be a turning point for cryptocurrency markets. Prominent economic historian Niall Ferguson told Barron’s online publication that pandemics are accelerators of financial history.

“We have seen in exactly the same way that the use of coins as currency was accelerated by the Black Death. Payments in kind gave rise to a cash economy in Europe, and this was accelerated in the 1340s,” said Ferguson, adding that the COVID-19 pandemic has accelerated the acceptance of Bitcoin as “semi-digital gold” among investors.

Caution is Key

However, the glib words of Bitcoin analysts and proponents are not without their flaws. For example, Bloomberg analysts say that one of the reasons for Bitcoin’s attractiveness is its lack of correlation with mainstream markets. But the recent whirlwind of the crypto market movement has occurred alongside some mainstream markets, which reached a record high at the same time as Bitcoin surpassed its peak in 2017.

It is important to remember that trading volumes and liquidity for cryptocurrency markets are a fraction of those for mainstream markets. There are fewer players, less transparency, and minimal regulation. And so, all price targets and analysis fall within the cycle of awards and can change with one major trade.