Bitcoin’s prices reached all-time highs above $40,000 less than a month after breaking $20,000 for the first time. Since the start of the most recent rally, ostensibly begun in October, its value has increased fourfold. 
So for pros and newbies alike, or if you want to be the cryptocurrency expert at your next Zoom party, it’s natural to ask: Why are prices going up, and will bitcoin crash? 
Bitcoin (BTC) was just invented 12 years ago as a new type of electronic payment system, built atop an Internet-based computing network that no single person, company or government could control. The reality is that the cryptocurrency’s trading history is so short, with methods for valuing the asset still largely untested, that nobody really knows for sure what it should be worth now, or in the future.

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That hasn’t stopped digital-asset investors or even Wall Street analysts from putting out price forecasts ranging from $50,000 to $400,000 or beyond.
Based on CoinDesk’s reporting, here are a few key reasons why bitcoin prices have recently rallied:

• Demand from institutional buyers, many of them eyeing bitcoin as a hedge against inflation. The cryptocurrency is seen as a hedge against inflation because, under the network’s original programming, only 21 million bitcoins can ever be created; so there’s a contrast with central banks like the Federal Reserve that can decide based on a committee vote to print more money. Big asset managers including Tudor Investment and Guggenheim Partners have announced bitcoin purchases or wagered on prices using futures contracts on the Chicago-based CME exchange. Even old-line Wall Street firms such as Morgan Stanley have weighed in with bullish pronouncements. Analysts for JPMorgan Chase, the biggest U.S. bank, recently predicted a price of $146,000 over the long term.
• The U.S. dollar’s decline in foreign exchange markets. The U.S. Dollar Index, a gauge of the dollar’s value against major world currencies like the euro and Japanese yen, slid 6.8% in 2020 and is down again in 2021. That’s key for bitcoin, since the cryptocurrency’s price is mostly denominated in U.S. dollars. Possible reasons for the greenback’s decline include the Federal Reserve’s $3 trillion-plus of money printing over the past year, which is roughly three-quarters of the entire amount previously created in the U.S. central bank’s 108-year history. Images of protestors storming the U.S. Capitol on Wednesday probably didn’t burnish America’s leadership role on the global stage, and now many economists are predicting that big spending plans under a Democratic-controlled government would lead to new stimulus bills and potentially outsize government budget deficits for years to come. Much of those extra costs could be financed through additional Fed money printing.
• Retail purchases. Many individuals are speculating on bitcoin prices, and it’s become increasingly easy to buy bitcoin, with big services like PayPal enabling purchases last year. Analysts for the digital-asset firm ByteTree noted this week that blockchain data appear to show a high concentration of bitcoin purchases in the amount of $600 - the same amount as the American stimulus checks sent out in the latest U.S. coronavirus emergency aid package.

All this may have led to a tremendous rally over the past few months. But could bitcoin prices crash? Of course they could, several analysts told CoinDesk. 
The cryptocurrency’s price is notoriously volatile, and substantial and unexpected price swings aren’t uncommon. Below is a sampling of comments from cryptocurrency analysts and other financial experts on how a pullback might look, and what might cause it.

• Bitcoin “has been and remains extremely volatile,” said Joe DiPasquale, CEO, BitBull Capital, a cryptocurrency-focused hedge fund. As recently as Monday, he noted, after prices had climbed to a new all-time high, they tumbled almost $7,000. “What causes this is that people can use lots of leverage, so they can easily get washed out.” He sees a correction as possible, though there appear to be plenty of interested buyers around $28,000, so that level might function like a price support.
• There hasn’t been a single year since 2013 when prices have not fallen at least 25% from a high point reached earlier in that year, said Gavin Smith, CEO of the digital-asset firm Panxora. He said he wouldn’t be surprised to see bitcoin prices rise to $70,000 or $80,000, nor a setback of 40%. Medium term, he’s bullish: “Over a three-year period, this is a great asset.” But over the long term, there’s a risk that technological developments could overtake bitcoin. “Even with quantum computing, there's nothing on the horizon that indicates that could happen,” he says, “but it’s always dangerous to completely ignore the risk.”
• Bitcoin prices could rally two to three times from their current level before falling back to about where they are now, said Mike Venuto, co-portfolio manager of the Amplify Transformational Data Sharing exchange-traded fund, which invests in blockchain-related stocks. That would imply a retracement of more than two-thirds from that hypothetically new all-time high. “What’ll cause a crash more likely is overexuberance on the upside. I don’t think we’re there yet.”
• “There will be swings, and yes, the swings will be wild,” said Denis Vinokourov, head of research for the cryptocurrency prime broker Bequant. “You have a lot of retail flow that tends to panic.” He sees prices going up, in the long term, at least partly based on the bullish expectations of big Wall Street firms. “Can it go to $4,000? Yes.” One potential trigger for a rapid sell-off could be any actions brought by authorities against tether (USDT), a privately issued, dollar-linked digital token known as a “stablecoin” that has become a key source of liquidity in digital-asset markets. New York State prosecutors are currently battling Tether in court due to its finances.
• “The history of financial markets is the history of bubbles," said James Angel, Georgetown University finance professor. He notes that authorities could move to crimp the bitcoin rally if they start to get worried that it’s becoming a threat. “Almost everybody who tries to start their own money does so in competition with a national currency, and it usually gets shoved aside by regulators.”
• "While we're currently seeing an unequivocal expression in the market's bullish sentiment, a correction could well be on the horizon," said Sui Chung, CEO of CF Benchmarks, a cryptocurrency provider. "This is a natural part of market mechanics. While it may dampen near-term enthusiasm, it will ensure future price rises remain grounded."
• “There is likely to be profit taking along the way, causing temporary dips," said Guy Hirsch, managing director for the U.S. at the trading platform eToro. "But given the extraordinary amounts of adoption by institutions, it would be a surprise if bitcoin dropped below $20,000 any time soon.”

So for the Zoom party, you can tell them: Yes, according to the experts, a crash is probably coming, but that’s typical for bitcoin, and if history is any guide, prices will probably recover. 
Just don’t tell them when.

In the financial world, “what’s past is prologue.” Overly rosy perspectives often set off the boom-and-bust cycles that have become all-too familiar over the past 20 years, from the dot-com bubble to the mortgage crisis.
Over the past 12 years, we’ve watched bitcoin’s BTCUSD, 1.55% evolution from netherworld currency to major institutional commodity. In that time, it has fluctuated widely, introduced as a near-valueless currency in 2009, growing in value to $19,000+ nearly nine years later, then losing 76% of its market value within a year, before beginning a steady climb in the second half of 2020 that puts its value at more than $30,000.
We believe that bitcoin has matured and now is the right time to invest in this widely popular currency. Here’s why:  
Today, there is significantly more demand for bitcoin than there is supply. About 900 new bitcoin are mined daily, and three market participants alone — PayPal, Square, and Grayscale Bitcoin Trust — purchase considerably more than 900 bitcoin a day because of high investor demand. If this dynamic continues, and we believe it will, much higher prices lie ahead for the dominant cryptocurrency. 
At the same time, the risks associated with investing in bitcoin—namely the potential for theft—have been substantially diminished over the past three years, with the U.S. Office of the Comptroller of the Currency authorizing national banks to provide cryptocurrency services. Several banks have also started to provide institutional bitcoin custody services, deposit-taking, custody and fiduciary services for digital assets.
What’s more, the IRS bestowed favorable tax treatment on bitcoin by treating it as property that produces capital gains and losses. And in another positive sign, PayPal rolled out bitcoin trading to its 238 million U.S. users. 


As a consequence of these regulatory and infrastructure developments, Wall Street has turned bullish on bitcoin.  Rick Reider, BlackRock’s chief investment officer, recently commented on CNBC that bitcoin “could take the place of gold…it’s so much more functional than passing a bar of gold around.”  AllianceBernstein issued a report on Nov. 30 entitled “Cryptocurrencies in asset allocation – I have changed my mind!”  J.P. Morgan issued a report on Dec. 3 declaring “the adoption of bitcoin by institutional investors has only begun.”
Bitcoin is now on the menu for asset allocators.  It has been embraced by several legendary investors, including Paul Tudor Jones, Stanley Druckenmiller, Bill Miller and Alan Howard, and a wall of institutional money is coming.  Hedge funds are starting to buy, headlined by the Tudor BVI Global Fund and One River Asset Management.  Insurance companies are starting to buy, with MassMutual recently buying a $100 million starter position in bitcoin.  Pension funds are starting to buy, including two Fairfax Retirement System pension funds making investments into a Morgan Creek Digital fund.  Public company treasurers are starting to buy, with MicroStrategy MSTR, +0.80% and Square SQ, +3.88% account for nearly $1.5 billion in bitcoin purchases.  Registered investment advisers are starting to buy, with legendary RIA founder Ric Edelman launching the RIA Digital Assets Council.  
The adoption floodgates are open.
SkyBridge initiated a substantial position in bitcoin on behalf of our flagship funds in November and December, which, at today’s prices, is worth $200 million, and has launched the SkyBridge Bitcoin Fund, which provides mass-affluent investors with an institutional-grade vehicle to gain exposure to bitcoin. 

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We credit our “aha” moment to Michael Saylor, the chief executive of software company MicroStrategy, who bought $1.2 billion of bitcoin in 2020.  During a recent SALT Talk, Saylor made a persuasive case that bitcoin, as the undisputed winner of the cryptocurrency wars of 2017, is the dominant digital monetary network.  Like Saylor, we believe that when a digital network—think Facebook, Amazon and Google—achieves a market capitalization of over $100 billion, the horse is out of the barn.  
Bitcoin is an evolutionary step forward for the technology of money, which has steadily progressed from barter to beads to gold to fiat currency.  Bitcoin is the first store of value in the world where supply is entirely unaffected by increased demand. Some 18.5 million bitcoin have been mined so far, and by 2025, over 20 million will be in circulation.  Yet there can only ever be 21 million bitcoin because of a stipulation set forth in its source code.
To place that number in context, there are 42-plus million people in the world with a net worth exceeding $1 million, meaning there are twice as many millionaires today as there will ever be bitcoins in circulation.
Today, the fact remains that bitcoin’s demand exceeds supply, and it is not even close.  Economics 101 tells us how this calculation will work out.  What more do you need to know?

• Bitcoin's near 300% surge in 2020 could be followed up by an even stronger performance in 2021, according to Fundstrat's Tom Lee.
• In an interview with CNBC on Wednesday, Lee said bitcoin could quadruple in 2021 as the crypto asset experiences a similar parabolic setup that occurred in 2017.
• "2021 is going to be a lot like 2017 which means bitcoin should do even better in 2021 than it did in 2020, so something above 300%," Lee told CNBC.

Following a strong 2020 that saw bitcoin march to all time highs for a gain of around 300%, 2021 could be even stronger.
That's according to Fundstrat's Tom Lee, who said in an interview with CNBC on Wednesday that he sees bitcoin surging another 300% next year.
At its current price of about $29,000, a quadruple in bitcoin would put the crypto asset well above the $100,000 mark at $116,000.
Driving bitcoin higher would be a similar setup to what was seen in 2017: a parabolic rally. Lee tweeted that the halvening of 2020 makes this year most similar to 2016, which also experienced a halvening. A halvening in bitcoin is when the reward for miners completing problems on the bitcoin blockchain is cut in half.



2021 will be most like 2017 in that bitcoin will likely experience a "parabolic rise," Lee tweeted.
Fundstrat's digital asset strategist David Grider also raised his outlook for bitcoin in a note on Wednesday, expecting the crypto asset to hit at least $40,000 next year.
"We believe the conditions remain in place for a continued rally in bitcoin and crypto more broadly over the next 6-12 months. Institutional and corporate buying, regulatory de-risking and retail stimulus demand are factors that have led to an increase in positive momentum, which we believe can continue," Grider said. 
But if the stock market corrects next year, the positive outlook for bitcoin may deteriorate, according to Lee.


"Bitcoin acts like a risk on asset, so in the years where the S&P performs the best are also the best years for bitcoin. So I think if we have a correction in stocks then bitcoin is going to fall," Lee explained. 

Just two weeks after tackling $20,000, Bitcoin passes the $30,000 mark on the second day of 2021.
Bitcoin (BTC) hit a fresh psychological landmark on Jan. 2 as the new year kicked off to a flying start for hodlers.
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BTC price wastes no time in 2021Data from Cointelegraph Markets, Coin360 and TradingView showed BTC/USD clinch $30,000 during trading on Friday.
After hitting new all-time highs of $29,700 overnight, the pair showed no signs of weakness, retesting the level several times before a final breakout occurred.
The area immediately below $30,000 had proven a source of intense selling pressure throughout the past few days, a setup similar to that which Bitcoin disrupted at $20,000 just weeks ago.
"If you're looking for an entry to HODL Bitcoin long term, don't nickel and dime an entry. You're not going to sweat a few thousand dollars of non-perfect entry when it's $100k,$200k,$300k in a year," popular statistician Willy Woo summarized on Friday.
"The main bull phase is here. Capital inflows has gone nuts."Mixed reactions for altcoinsAmong major altcoins, performance on the day was mixed, with Ether (ETH) staying flat below $740 despite Bitcoin's latest advances.

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."
MORE FOR YOUAs Bitcoin Blasts Past $25,000, Here’s Why This Investor Made The Surprise Decision To SellAs The Bitcoin Price Surges, Coinbase CEO Brian Armstrong Issues ‘Worrying’ Bitcoin And Crypto Warning‘Borderlands 3’ Needs A Mayhem 3.0 Soon To Fundamentally Change How Mayhem 2.0 WorksThe bitcoin price has come within touching distance of $30,000 this week, hitting $29,700 per bitcoin on the Luxembourg-based Bitstamp exchange before falling back slightly. Bitcoin is up four-fold from the beginning of 2020 and completed its biggest monthly gain since May 2019 in December.
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."