Since early 2018, the cryptocurrency markets have fallen precipitously. As with previous crashes, many have claimed that the markets are unsalvageable and Bitcoin is dead. On the contrary, there is reason to believe that the crypto markets cyclically go through a bear market only to recover and scale to new heights. I believe this cycle occurs approximately every four years. I believe we are therefore due for another bull market in 2021.
Following this thesis, 2018 and 2019 form a ‘Crypto Winter’ that saw the bubble of 2017 deflate. Accordingly, 2020 will see Bitcoin reascend during what can be dubbed ‘Crypto Spring’. In 2021, Bitcoin and Ethereum will reach new heights. Now is thus an opportune moment to build a position in crypto to reap the benefits of what will be an epic bull run.
Bitcoin Breaks a Record in 2014 Only to Fall Back Downwards
Bitcoin’s Epic 2017 Performance Makes the 2014 Surge Hardly Noticeable
What might trigger the next bull run? Firstly, a Bitcoin block reward halving is anticipated for May of 2020 and may trigger bullish market sentiment or a ‘Crypto Spring.’ In 2016, the market responded to a Bitcoin halving by triggering a small uptick in the price of Bitcoin which was followed by an epic surge thereafter. The Bitcoin halving of 2020 will see a block reward diminish from 12.5 Bitcoins to 6.25 Bitcoins. By this date, 85% of Bitcoins that will ever be in circulation will be mined. Moreover, in December of 2018, Bitcoin’s hashrate, the amount of computational energy dedicated to unearthing new Bitcoins, began to reascend, indicating a newfound confidence of the crypto community in the future prospects of the price of Bitcoin. Also noteworthy, Facebook is anticipated to introduce a stablecoin that may integrate with WhatsApp to facilitate remittances from India later on this year. In hyper-inflation plagued Venezuela, cryptocurrencies like Litecoin and Bitcoin are already utilized for remittances to the country as they are easier to transmit across borders than U.S dollars. An order for $100,000,000 of Bitcoin triggered a small rally at the beginning of April and accumulation by investors or ‘whales’ will continue to lead to cryptocurrency rallies. Moreover, there are signs that a recession is on the horizon for traditional markets which would boost cryptocurrencies which are uncorrelated with equities or fixed income instruments. The bond yield curve has sloped downward indicating a high chance of a recession by the end of 2020. If a recession does indeed hit, asset managers may try to diversify and maximize the returns of their underlying portfolios by increasing allocations to cryptocurrency.
Further evidence that a crypto spring is around the corner are the indicators that institutional investors are whetting their appetite to the asset class. For example, in October of 2018, the 29.4 billion dollar Yale Endowment, one of the great endowments in the United States, and the country’s second largest university endowment, invested in two crypto funds: Andreessen Horowitz Cypto and Paradigm. The 12 billion dollar University of Michigan endowment followed shortly thereafter and it is likely that many other endowments will follow suit. Indeed, according to reports made by the Information, the endowments of Dartmouth, MIT and Stanford have already made cryptocurrency investments. The Harvard endowment invested in Blockstack’s initial coin offering in April 2019. In February of 2019, a Fairfax county pension fund in Virginia invested in the Morgan Creek Digital crypto fund. Moreover, Cambridge Associates, a consultant to many pensions and endowments with $389 billion of assets under advisement, published a report encouraging clients to consider having some exposure to the space. Furthermore, there is anecdotal information that prominent conventional hedge funds are exploring crypto strategies. ‘Fidelity Digital Assets’ launched in March to offer crypto custody solutions to institutional clients. If the 2017 bubble was driven by retail investors, the 2021 surge will be fueled by institutional investors.
It is unlikely that there will be another speculative bubble in 2021 as there was in 2017. Institutional investors will refrain from driving the price of cryptocurrency up too quickly so as not to trigger another bubble. Bitcoin will thus begin a slow and steady ascent upwards, just as the NASDAQ did after reaching trough following the dot com bubble in 2001.
NASDAQ Eclipses S&P 500 returns 146.5% vs. 95% from trough to peak. It surpasses its 2000 peak in 2015.
In conclusion: Crypto Winter is thawing. There is reason to anticipate that Bitcoin will go through a tremendous bull run on the horizon and end up in the $25,00 — $100,000 range. I invite you to join me for the ride.