After The Biggest Year in Crypto!
Let’s start by reflecting on 2021, it was the biggest year in crypto to date. We saw household cryptocurrencies reaching fresh all-time highs, increased mass adoption, significant milestones in institutional adoption, financial innovation, and an upgrade for Bitcoin.
Key moments of 2021:
Not a bad year of action, but the big question is, what will 2022 bring for our favourite cryptocurrencies. Investors and speculators alike are desperate to understand how crypto will develop and react to the global economic environment.
With the cryptocurrency market still in its infancy, we have minimal history to base models and predictions. Furthermore, the confusion in the international markets as we battle the financial impact of a global pandemic. It makes it very challenging to pinpoint what social and political factors could influence the price of Bitcoin moving forward.
However, like any other investment, Bitcoin has all the traditional economic factors influencing its price. Such as supply and demand, public sentiment, the news cycle, market events and so on. But, looking closer, there are four key influences that are particular to the bitcoin price. These include scarcity, adoption, regulation, and mining cycles. Lets take a closer look at each influencing factor:
There are only 18 to 19 million Bitcoins in current 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.
Let’s consider that a large percentage of Bitcoins are lost. According to Investopedia, Bitcoin users have misplaced about 20% of all existing coins. Unlike fiat currency which can potentially be recovered, it’s extremely improbable that these tokens will be returned to circulation.
As a result, there may only be 16.8 million is Bitcoins available, where the rest will be lost forever. Although this will not directly impact the price of Bitcoin, it does add to the effect of scarcity and its impact on the supply and demand, which continues to push up the price of bitcoins.
Another key factor driving the increasing price of Bitcoin is the rate at which new consumers are buying and exploring cryptocurrency. Additionally, adoption rates are now boosted by the appetite of institutional investors, which then gives confidence to the retail market.
In general, Bitcoin adoption rates are faster than those of the internet. Assuming it continues at current rates, the compounding acceleration of new adoption will 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 pace of 63%.) If people warmed to Bitcoin at a comparable rate to that of the internet’s early days (or faster), there is a case for 1 billion users by 2024 and 4 billion users by 2030.
CCS Wealth CEO Daniel Coffey and fiancée Lilla Mercier.
Coinbase says it has now over 73 million worldwide users, while fellow exchange Gemini recently released its “State of U.S. Crypto Report,” which states that 21.2 million Americans own cryptocurrency of some kind (which is only 7%).
Throughout the year of 2021, companies and institutions continued to increase the adoption of bitcoin. In February, Elon Musk with Tesla exchanged 7.7% of cash holdings to add 1.5 Billion USD worth of Bitcoin to its balance sheet. Many other firms also made the headlines with bitcoin accumulation activity, but none more than MicroStrategy, which purchased another $94.2 million worth of bitcoin in December.
According to the Bitcoin Treasuries List, 59 Companies and a handful of countries now hold 1.49 Million BTC. As institutional investors continue to acquire Bitcoins at exponential rates, It is only a matter of time before we witness a Bitcoin supply squeeze.
Although cryptocurrencies are rapidly maturing as we enter the mass adoption cycle, the actions of governments will continue to impact the crypto price. When China banned Bitcoin mining in September 2021, for instance, investors saw the price of Bitcoin drop, though it quickly bounced back to its usual volatility.
America is also watching 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 should be subject to federal oversight. Although this activity may only affect taxpayers in the United States, many other nations will most likely follow suit.
What we do know is that crypto holders that want to stay on the right side of the law should keep two things in mind:
4. Mining Cycles
Finally, the fourth significant influence on Bitcoin’s price is a cycle known as ‘The Bitcoin halving’. Bitcoin’s next halving will likely occur between February 2024 and June 2024. This programmed event is built into the bitcoin algorithm and results in the reward payment for mining Bitcoin getting reduced by half.
Halving the reward influences the rate at which new coins enter circulation, impacting the value of existing Bitcoin holdings. Historically, halvings have correlated with boom and bust cycles.
Companies continue to expand Bitcoin mining efforts (see graph below). Recently Marathon Digital Holdings, a Nasdaq-listed bitcoin mining company based in Las Vegas, has ordered new machines worth $879.06 million, to be delivered through 2022. Marathon is one of the largest public bitcoin mining companies in the world and is estimated to produce a total of over 3,000 bitcoins in 2021.
With this much interest in strengthening Bitcoin infrastructure, coupled with a diminishing supply, we can be sure that the cost of each coin will also increase.
Crypto Valley Conference 2021
Crypto Valley Conference 2021
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