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December 31, 2020

Long term view on Bitcoin and price estimation

Bitcoin and other cryptocurrencies are experiencing strong price increases in the last months before the turn of the year. Bitcoin broke the $20,000 USD barrier on 16 December after a three-year bear market, and we are now close to $30,000. Will this rise continue into the year 2021? And can we make a realistic estimate of the value development?

Long term view on Bitcoin and price estimation
Long term view on Bitcoin and price estimation

By: Steven Eblé

Will the US dollar continue to fall?

One of the main reasons for Bitcoin's rise in value is the ever weakening US dollar. There is an inverse correlation between the value of Bitcoin and the US dollar. When the US dollar falls in value, Bitcoin rises in value, and vice versa. But why is the value of the US dollar falling so sharply and will it continue to do so in 2021?

The reason that the US dollar is very weak is related to the fact that the US Central Bank (SEC) is printing large amounts of money. So much money is printed to keep the economy going during the period of the Corona Crisis. The graph above shows that the amount of US dollars in circulation has increased by 23% in one year. In the United States, but also worldwide, people are afraid that this huge amount of money put into circulation will cause an unhealthy inflation. It is quite possible that this will already become clear in the year 2021.

Bitcoin is for many people a safe guard against inflation, because the amount of bitcoin is fixed. An unhealthily high inflation of the US dollar could be an important reason for a further increase in the value of Bitcoin in the year 2021.


Enormous shortage of supply


Another reason connoisseurs are bullish about Bitcoin in the long run is that the chart above provides insight. The graph above shows the amount of Bitcion on Exchanges. You can see that the amount of Bitcoin on Exchanges has been declining since February this year. It's even true that we haven't seen such low amounts of Bitcoin on Exchanges in the last two years. The idea behind this phenomenon is that Bitcoins are removed from Exchanges and placed in cold wallets. This is mainly done by large investment funds. This indicates that large mutual funds do not want to get rid of their Bitcoins in the short term or speculate on the market by means of futures, but that they are looking at the long term. Thus, the supply of Bitcoins is decreasing while the demand is only increasing. If this continues into 2021, there could be a supply shock. The supply is so small and demand so high that a huge price increase could be the only consequence.


Price estimate


This makes it look fundamentally good for Bitcoin in the years to come. But what value could Bitcoin have by the end of 2021?

The graph shown above, called the Bitcoin logarithmic regression band, allows us to make a reasonable estimate. You can see that Bitcoin has always stayed within this logarithmic re gression band in its 12 years of existence. From the oscillator, we can deduce that the previous Bitcoin cycle lasted four years (end 2013 to end 2017). If this repeats itself, the oscillator will make another summit in December 2021. The value would then rise to the top line of the logarithmic regression band. Bitcoin's value could then be close to US$100,000.

However, it is quite conceivable that the current cycle will last a little longer than the previous one. After all, the bigger Bitcoin's market cap, the more capital needs to be invested to achieve the same increase in value. This would mean that the value of $100,000 would not be reached until December 2022. We believe that by the end of 2021, the value of a bitcoin will be around US$50000.


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