With the world’s leading economies all aggressively printing money via Quantitative Easing, investors are discovering that holding cash is no longer the safe haven it used to be. Interest returns have been slashed to near zero, offering very little value in storing cash in times of economic downturn. In fact, investors have seen cash devalue, destroying the wealth of many who have chosen to stay traditional cash holdings (fiat currencies).
Traditional economic concepts would suggest that markets should collapse when experiencing a severe economic downturn such as in the year 2020. However, this certainly has not been the case. Stock markets have risen around the world, and resident and commercial property prices continue to hold firm.
Australian markets have followed suit. Though not as strong as foreign indices, the Australian stock market has increased by a healthy 10% by 2020 year end. Investors are recognising that There Is No Alternative (TINA), but to shift their cash holdings to other assets. Even the possibility of a small return in other assets, is better than losing wealth via storing cash. Some are even leveraging and taking advantage of historical low lending rates, and pumping up the markets further. However there is a fear that the stock market is overvalued.
With chasing returns far and wide, investors are now turning to non traditional forms of investments, which includes Bitcoin and Cryptocurrencies.
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Return of Bitcoin
Bitcoin went through a boom and bust period from 2017 to early 2018. Hitting a high of $US20,000 then sinking to a low $US4,000. Many considered at the time, that bitcoin was a passing fad, a novelty in technology that would not be accepted by mainstream. From 2018 to early 2020, Bitcoin remained hovering at $US10,000, but then sunk again to a low of $US5,000 when the corona virus panic hit the world.
However for the several months following April 2020, bitcoin recovered strongly. And towards the end of December 2020, Bitcoin had a huge week in the trading markets hitting all time highs of $US28,000. An extraordinary 16.9% up for the week, and an increase of 47.9% for the month of December 2020.
Bitcoin was not the only riser in the markets. During the week, Ethereum rose by 18.5% hitting just above $950, Litcoin shot up by 21%, bitcoin cash rose 12.4%, Synthetix 28.2% and Chainlink a small 1.2%.
Not all coins gained though, with several retracting: Bitcoin SV, EOS, and XRP Ripple down a massive 53.1% due to the US Securities and Exchange Commission (SEC) potential unfavourable treatment looming.
Ethereum is going through a stellar run. Heading up towards $1000, many traders have made a handsome profit. Contributing to the rise of ETH is the limited supply via reduced mining activity. Will this continue through to the new year?
Ripple (XRP) down in the dumps
The US SEC began a class action against Ripple as a company. It is alleging that Ripple is not a cryptocurrency in the true sense of blockchain digital payments, but is a company that has raised “shares” in the traditional sense through its coin XRP.
As a result, the SEC considers Ripple has raised over $1.7 billion illegally. Subsequent to the announcement of the class action, Coinbase, Bitstamp, OKCoin, Beaxy, Simplex and Grayscale XRP stopped all trading of Ripple (XRP).
The worse case scenario is that all US exchanges will be required to remove Ripple (XRP) from listing, forcing US tradings to seek offshore exchanges.
Chainlink trends higher
Chainlink had a year to remember, being voted as one of the leading digital currencies by the World Economic Forum. Throughout the year, it has gained over 520%, and now belongs in the top 10 of cryptocurrencies in valuation. The developers of Chainlink has improved upon the safety and security of using Chainlink, enabling the potential to expand through smart contracts such as tracking the results of the US election.
Bitcoin became part of Mainstream in 2020
Bitcoin however remains the most popular among investors and the most well known.
The year 2020 saw many advances which allowed bitcoin to become more accepted in society. The addition to PayPal’s services (the largest e-wallet in the world), to transfer bitcoin drove demanded in bitcoin, when it was first announced. PayPal wasn’t the only one to join cryptocurrencies though. Square also jumped onto the band wagon and began offering it.
Large corporates began turning to investing large sums of wealth into bitcoin. Institutional and fund managers in the US, such as insurance companies, hedge funds and boutique fund managers have invested over billions of US dollars into bitcoin as a long term safe haven.
Infrastructure of bitcoin also has developed considerably. In the past, USB sticks containing the public and private keys for storing bitcoin was the common method of safe keeping – cumbersome to say the least. Today, it is no longer needed, although still considered the safest option. Online Wallets (or Hot Wallets) have improved in security tremendously thus providing the convenience that many users are looking for.
Policy making, Licensing and Regulations have developed over the years forming a robust framework. Still evolving and developing, it has come a long way from the wild west days, to a least now, an industry that can be trusted.
Paving the way for facilitating the growth of cryptocurrencies are the exchanges. Centralised exchanging matching buyers with sellers have become safer owed to the regulations being implement. But also, cyber security has improved. Unfortunately, as with many new burgeoning industries (especially in the financial industry) scams and hacks become prevalent and prey on innocent investors.
It’s not a known figure, however anecdote many Australians have been tricked by scams. Operators of scams using fake endorsements by celebrities as part of their marketing strategies, and even build fake news sites to copy news.com.au, smh.com.au and abc.net.au. By developing and intricate web of fake sites and marketing, the innocent investor is tricked into believing that the bitcoin scheme is legitimate, thereby investing their monies.
Bitcoin Outlook 2021 Factors
The year 2021 is anticipated to bring forth further gains in bitcoin value. There are several factors that contribute to this, most found through comparison to other assets, its features of limited supply removing any possibility of dilution via “quantitative easing”, and practicality as a payment method.
Look out Gold! Bitcoin is coming!
As a safe haven asset, now being compared to that of gold, many are seeing that there is a lot of gains further to be had. The value of gold worldwide is valued at $US10 trillion, while bitcoin has only hit the $US600 billion mark. If bitcoin were to truly be accepted as a safe haven equivalent to that of gold, in theory, bitcoin should also increase in value by another 10 times.
Self Managed Super Funds
SMSF are constantly changing long term stable returns which term deposits can no longer provide. The longer wealth in Super Funds are stored at banks, credit unions and even neo banks as plain vanilla cash, value will be eaten away.
The upcoming generation of Australians understand that investing in bitcoin and cryptocurrencies is a better way of accumulating long term wealth and are turning to SMSF for control to invest in bitcoin. 2021 is anticipated to be a watershed year, where the vast majority of SMSF will have a percentage of their super invested in bitcoin.
As the population ages, general composition of Australians will be familiar with using technology to trade and own bitcoin. Currently, and understandably those in the older age brackets may find it difficult to invest in bitcoin due to complexity with using new technology. “Selfies” are now required to form part of Account Openings at bitcoin and cryptocurrency exchanges. This can be extremely challenging for the older generation to load up to a portal, whilst the younger generation of Australians will be comfortable with navigating through the procedures in order to open an account.
Ownership of cryptocurrency is therefore unsurprisingly skewed towards the younger age brackets.
As the population ages, it will be inevitable that more will be wanting to invest in bitcoin and cryptocurrencies.
Conclusion – 2021 Bitcoin Outlook is Bullish
Mainstream media has spurned the rise of cryptocurrencies. Plus more corporate are now investing and utilising the power of cryptocurrencies. The year 2021 could be a ground breaking year, with the network of currencies expanding with technology improving. Ecosystems will integrate further, offset by further regulation anticipated.