Bitcoin’s recent run higher has brought out a lot of old predictions — and some new ones — about the future of crypto prices.
The largest cryptocurrency has had quite a 2020, where after dipping below $4,000 it’s marched higher and is now bouncing around $12,000. It’s seen further acceptance in the mainstream investment community, experienced a “halving” where the rate of Bitcoin created dropped by 50% as of May, and seen correlations with gold rise to records.
The environment has changed significantly since Bitcoin’s big 2017 runup — and the comedown and “crypto winter” that followed. The digital-asset community tends toward Bitcoin bullishness at pretty much any time, but there are indications the increase might be more sustainable this time around with advocates pointing out the advantages of an alternative form of money while governments ramp up stimulus in the wake of the coronavirus pandemic.
First of all, there’s the rising demand from some of the biggest market players.
“We are continuing to see increased interest from institutional investors,” said Henri Arslanian, PwC Global Crypto Leader in Hong Kong. “Institutional investors now are able to get access to digital assets via multiple players that are regulated, of institutional grade and that would pass any operational due diligence test of any institutional investor. This was not the case 18 months ago.”
Then there’s the halving. JPMorgan Chase & Co. says Bitcoin’s intrinsic value — which it calculates using a cost-of-production approach — has jumped because of it. While the market price was above the JPMorgan intrinsic value estimate through much of 2019 and early 2020, the two measures had been fairly close together until a recent upward move by Bitcoin.
“Much of the gap between the market price and intrinsic value was closed by a decline in the latter as miners responded with a combination of a decreased overall hash rate and improvement in efficiency, likely as less efficient rigs were turned off,” JPMorgan strategist Nikolaos Panigirtzoglou wrote in a note Aug. 4. “More recently, the increase in the market price appears to have taken it from trading at around a 10% discount of production cost to a premium of a similar magnitude.”
And Bloomberg Intelligence’s Mike McGlone looked at price behavior around the last halving to project potential gains for Bitcoin. He said in a report earlier this month that this year should see Bitcoin touch the $14,000 area, around last year’s highs. But he thinks there’s potential for even more.
“Bitcoin is mirroring the 2016 return to its previous peak,” McGlone said in early June. “That was the last time supply was halved, and the third year after a significant peak,” he said. “Bitcoin will approach the record high of about $20,000 this year, in our view, if it follows 2016’s trend.”
Then there’s the demographic trend. JPMorgan’s Panigirtzoglou also said Millennials are supporting Bitcoin, which the cohort sees as an “alternative” currency the way older investors view gold. That generational support has been a longtime theme for Fundstrat Global Advisors LLC’s Tom Lee, who noted in a January report that the group is set to inherit $68 trillion in the next 20 years.