Bitcoin notched its latest all-time high of
the year on Nov. 10 when it went over $68,000 for the first time. By early
December, it had dropped back
below $46,000.
This latest high point is a huge increase for Bitcoin’s price after
starting the year below $30,000 in January. Its price fluctuates wildly by the
day and even by the minute.
Still, many experts say Bitcoin is on its way to
passing the $100,000 mark, though with varying opinions on exactly when that
will happen. The volatility is nothing new, and is a big reason experts say new
crypto investors should be extremely cautious when allocating part of their
portfolio to cryptocurrency.
Bitcoin has shown as steady a rise in value over the
years as any other cryptocurrency on the market. It’s only reasonable for
Bitcoin investors to be curious about how high it can ultimately go.
Unfortunately, Bitcoin’s price is
extremely difficult to predict and even more susceptible to market factors than
more established asset classes. But we decided to ask some experts for their
best guesses anyway. Here’s what they said:
Bitcoin Price Predictions
Conservative predictions of Bitcoin say
the cryptocurrency will reach $100,000 by 2023.
Some experts are more bullish. “The most
knowledgeable educators in the space are predicting $100,000 Bitcoin in Q1 2022
or sooner,” says Kate Waltman, a New York-based certified public accountant who
specializes in crypto.
Others are hesitant to predict a number
and a date, but rather point to the trend of increasing value over time.
Investors should expect a “pretty sustainable” rise in Bitcoin’s long-term
value driven by organic market movement, with the $100,000 threshold in near-sight,
predicted Jurrien Timmer, director of global macro at Fidelity
Investments, last month.
“What I expect from Bitcoin is volatility
[in the] short-term and growth [in the] long-term,” says Kiana Danial, founder
of Invest Diva and author of “Cryptocurrency Investing For Dummies.”
Unsurprisingly, you’ll find widely
varying opinions and predictions on how high Bitcoin can go (and when) from
well-known crypto investors, evangelists, and public commentators. Here are
some more predictions we found, ranked from low to high over the next year:
Ian Balina
Point of View: Bitcoin investor and
founder of crypto research and media company Token
Metrics
Prediction: $75,000 by the end of
2021
Why: Technical data certainly proves
$100,000 isn’t out of the question, but Balina told NextAdvisor he prefers to
take a more conservative stance.
Matthew Hyland
Point of View: Technical analysis
and blockchain data analyst
Prediction: $250,000 by January 2022
Why: Bitcoin crossing the inevitable
$100,000 threshold will catalyze a euphoric bull run, Hyland has said on his
Twitter account. Hyland cited as evidence the 150% move back
in 2017 where Bitcoin rose from $8,000 to $20,000 right after Thanksgiving of
that year.
Robert Breedlove
Point of View: Founder and CEO of
the digital assets marketing and consulting firm Parallax
Digital
Prediction: $307,000 by October 2021
(now passed), and $12.5 million by 2031
Why: Inflationary pressures after
COVID-19 will drive interest in cryptocurrency, pushing the value of Bitcoin up
higher than previous projections estimated. In an interview earlier this year, Breedlove
also pointed to how the last quarter of 2021 is roughly 510 days after an event
called “halving,” in which Bitcoin’s algorithm changes the reward for mining
transactions on the blockchain. Breedlove said past halving events have been
followed by new highs roughly 500 days afterward.
And it isn’t just crypto insiders who are
making Bitcoin predictions. Big financial institutions have made their own
predictions, as well, with JPMorgan predicting a long-term high of $146,000 and
Bloomberg predicting it could hit $400,000 by 2022.
PRO TIP
Even if Bitcoin breaks $100,000, stay
focused building on your overall portfolio including passive index funds,
emergency savings, and your retirement account(s).
What Influences Bitcoin’s Price
Normal economic factors influence the
price of cryptocurrency just like any other currency or investment — supply and
demand, public sentiment, the news cycle, market events, scarcity, and
more.
As a new and emerging asset, additional factors influence Bitcoin’s value more than
the average currency or security. Here are some:
Scarcity
There are only 18 to 19 million Bitcoins
currently in circulation, and minting will stop at 21 million. Industry experts
consistently point to this built-in scarcity as a big part of cryptocurrency’s
appeal.
“There’s a fixed supply but increasing
demand,” says Alexis Johnson, president of the
blockchain public relations and events company, Light Node Media.
Other experts point out Bitcoin has value
because people give it value. “That’s really why everybody’s buying — because
of the psychological aspect,” says Nelson Merchan, Johnson’s Light Node Media co-founder. That
can make it difficult for the average consumer to discern whether Bitcoin and
other cryptocurrencies are legitimate. The whole concept of supply and demand
only works when people want something scarce — even if it previously didn’t
exist.
“It actually does almost kind of seem
like a scam,” Merchan says about Bitcoin’s origins. Though he says he’s seen
his crypto holdings reach millions at times since he began investing in 2017,
he’s also seen them disappear in an instant.
“I’m a big believer that if it’s not in
cash, you don’t really have that money because in crypto, anything can drop
dramatically overnight,” Merchan says. This is why certified financial planners
suggest only allocating 1% to 5% of your portfolio to crypto — to protect your
money from the volatility.
Mainstream Adoption
One of the main factors driving the price
increase of Bitcoin is the rate at which new consumers are buying and exploring
cryptocurrency, says Waltman.
“Crypto technology is being adopted at a
faster rate than humans first adopted internet technology,” she says. Assuming it
continues, the compounding acceleration of new adoption could keep pushing the
value of Bitcoin higher and higher.
Bitcoin adoption has been increasing at
an annual rate of 113%, according to data from the digital asset
management firm CoinShares. (Meanwhile, people adopted the internet at a slower
rate of 63%.) If people warm up to Bitcoin at a comparable rate to that of the
internet’s early days (or faster), the report makes the case that there will be
1 billion users by 2024 and 4 billion users by 2030.
CoinDesk reported last month the number of new
wallets worldwide increased 45% from January 2020 to January 2021, to an
estimated 66 million. Popular crypto exchange Coinbase says it has now over 73 million
worldwide users, while fellow exchange Gemini recently released its “State of U.S. Crypto Report,” which found 21.2 million
Americans own cryptocurrency of some kind.
Regulation
Federal officials have made it clear in
recent months they are paying attention to the crypto industry. President Joe
Biden recently signed an infrastructure bill requiring all crypto
exchanges to notify the IRS of their transactions. Similarly, Treasury
Secretary Janet Yellen recently said stablecoins — a type of crypto linked to
the value of the U.S. dollar — should be subject to federal oversight.
The conversation on regulatory policies
is “patchy,” said an industry white paper published by Flourish, a fintech platform designed for investment advisors.
With a relatively new asset class like cryptocurrency, any new regulation has
potential to impact value and in turn investors’ portfolios.
When China banned crypto in September
2021, for instance, investors saw the price of Bitcoin drop, though it has
since risen and resumed its usual volatility. Even though there’s now about a
decade of precedent for Bitcoin, the Securities and Exchange Commission is
taking all decisions on a case-by-base basis in what experts refer to as its
“crawl, walk, run” strategy toward mainstream crypto adoption.
“[Regulation has] kind of evolved over
the last five years,” says Ben Cruikshank, head of Flourish, “Regulators can always
change their mind.”
Mining Cycles
Finally, another major influence on
Bitcoin’s price is a cycle known as halving. It’s complicated and algorithmic
in nature, but in essence halving is a step in the Bitcoin mining process that
results in the reward for mining Bitcoin transactions getting cut in half.
Halving influences the rate at which new
coins enter circulation, which can impact the value of existing Bitcoin
holdings. Historically, halvings have correlated with boom and bust cycles.
Some experts try to predict these cycles down to the day after a halving event
concludes.
What Investors Need to Know About Bitcoin
Price Projections
As with any investment, financial
planners and other experts advise against letting Bitcoin’s price fluctuations
lead you to emotional decision-making. Studies have shown investors who
contribute regularly to passive index funds and ETFs perform better over time,
thanks to a strategy called dollar-cost averaging.
That’s part of why experts recommend not
investing more than 5% of your overall portfolio in cryptocurrency, and never
investing at the expense of saving for emergencies and paying down
high-interest debt. The path to long-term wealth and saving for retirement is
most often successful for people with diversified investments like low-cost
index funds, with crypto making up a very small part.
And even with crypto, experts say a
set-it-and-forget-it approach makes sense. “Passive investing is a very valid
way to achieve financial goals,” says Arkansas-based certified financial
planner Sarah Catherine Gutierrez.
Since crypto is still new to most people,
it’s OK to wait and see how things unfold before putting your money on the
line. We only have about 10 years of data to inform crypto price predictions,
and the value of Bitcoin — while climbing long-term — is highly volatile from
day to day.
Volatility makes it hard to know the
“what” and “why” behind your crypto strategy. Before investing in Bitcoin or
any alternative assets, ask yourself what you want to achieve from your
participation in this particularly volatile market, and why. That will help you
stay focused.
“I don’t think people understand across
the board how to value [Bitcoin],” says Gutierrez. “When you’re buying it, you
need to know your expectation of what value you’re going to get from what
you’re buying.”
Financial planners don’t have a bias
against cryptocurrency, Gutierrez says, particularly if a client expresses an
interest in learning about it. However, you should ask yourself whether you
need crypto as part of your plan. In most cases, says Gutierrez, the answer is
no.
“Our take is that we don’t think you need
Bitcoin in order to reach financial goals,” she says, adding that the average
person should favor simple ways of investing that are easy to understand. This
will keep you on track for core financial goals and better position you
long-term for a healthy retirement.
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