Bitcoin has just closed out one of the biggest years in its history, second only to the crypto-mania fueled retail rally of 2017.
The bitcoin price has added over 300% during the last 12 months, climbing past its 2017 highs amid renewed institutional interest and the prospect of broader mainstream adoption.
Now, as the bitcoin price hovers under the psychological $30,000 per bitcoin level, cryptocurrency traders and investors are looking for clues that might reveal how bitcoin will fare through 2021.
"It is still quite bullish on an intermediate-term basis given that [bitcoin] just broke out to new all-time highs," Mark Newton, founder and president of Newton Advisors, told CNBC’s Trading Nation this week, pointing to charts that show the bull run might be put on pause in early 2021. "I think we have a ways to go. Near term, my cycle composite shows us peaking out in early January."
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Bitcoin's latest bull run was sparked in October by news payments giant PayPal PYPL +1.2% would begin offering bitcoin and cryptocurrency support. It was boosted by wave of institutional interest in bitcoin and Wall Street giants including Citibank and JPMorgan JPM +1.4% making surprisingly bullish bitcoin predictions.
In December, a leaked Citi report revealed one of the bank's senior analysts thinks bitcoin could potentially hit a high of $318,000 by December 2021, calling it "21st century gold."
Bitcoin has built up its reputation as "digital gold" throughout 2020, finding support from investors who are wary massive government money-printing will devalue traditional currencies and trigger a wave of inflation.
"Gold reached a new all-time high in 2020 and bitcoin has set a string of new peaks, more than trebling in the second half of the year to pass the $28,000 mark for the first time," Russ Mould, investment director at brokerage AJ Bell, said via email.
"Some will argue that there is more to come from both gold and bitcoin, especially if governments keep piling up debts and central banks do their best to fund that borrowing through the backdoor with quantitative easing, zero interest rates and bond yield manipulation, thanks to their scarcity value relative to cash," Mould said, referencing bitcoin’s fixed supply of 21 million tokens and gold's 2% per year supply growth.
Bitcoin's growing popularity is, meanwhile, expected to create further polarity between those who see bitcoin as a sound investment and those who are suspicious of its value.
"Others will argue neither gold nor bitcoin have intrinsic value, as they do not generate cash," Mould said.
"Some will even argue that bitcoin is just a glorified Ponzi scheme, as new money flows in at the bottom to help the smart money that got in early bail out at the top. In 2021 investors will get their chance to pay their money and take their choice as to whether they see bitcoin and gold as stores of value, and useful portfolio diversifiers, as governments and central banks conjure money out of thin air, or more trouble than whatever they may or may not be worth."
Meanwhile, the cryptocurrency community is divided over the future of many smaller cryptocurrencies. The looming threat of regulation and increased government oversight has caused consternation that less decentralized cryptocurrencies could take a hit.
"Bitcoin dominance is inevitable after a tumultuous year that has seen the king of crypto surge in price from under $4,000 in March to a new all-time high of above $28,000," Paolo Ardoino, chief technology officer at Hong Kong-based and British Virgin Islands-registered cryptocurrency exchange Bitfinex, said in emailed comments.
Bitcoin dominance, a measure of bitcoin's value compared to the wider cryptocurrency market, has ticked up in recent weeks but remains more-or-less flat over the last 12 months.
"While a growing institutional presence has been part of the narrative of the current bull run, we may see increased retail interest in bitcoin as a form of digital gold," Ardoino added. "This could also bolster interest in the many innovative projects coming to fruition within the digital token space."