When bitcoin – now the world’s most popular cryptocurrency – came onto the scene in 2009, most people expected it to fail or, for the very most, to be inconsequential. But as the years have passed, those people have been proven wrong. Things like the latest bitcoin price prediction are enough to get millions of people talking.
With events like bitcoin halving – in which the block reward produced by miners is halved – happening every four years, and the value of the BTC remaining volatile, bitcoin price predictions are all the rage. Various crypto experts, developers, researchers, and CEOs of major currency exchanges often drop bombs about their latest predictions. Sometimes they come true; sometimes, they don’t.
Nevertheless, these experts continue to make bitcoin price predictions, and people continue to base their BTC decisions on these predictions. What becomes a pertinent question here is: Are these predictions reliable? What goes into these forecasts? Should we base our decisions on these predictions?
This article delves into the idea of these predictions to see what they’re all about.
What Factors Affect The Cost Of Bitcoin?
One would assume that the factors which affect the actual cost of the currency are similar to those that affect bitcoin price prediction. As such, it might be useful to look at some of these factors.
Supply And Demand
As with anything else, the supply and demand for bitcoin affect its price. As a result of the rules dictated in the bitcoin protocol, BTC is created at a fixed rate. BTC is created (or released into the market) as miners add blocks to the blockchain by verifying transactions. But adding blocks to the blockchain requires miners to solve mathematical problems, and these mathematical problems get increasingly difficult to solve.
This means the rate at which new BTC is released into the system gets slowed. This could result in a higher demand, which increases quicker than the rate at which new BTC is being created. Here, the price will increase.
Competitors
Although bitcoin is the most popular one, several other cryptocurrencies are giving it a run for its money. And the more broad the competition, the lower prices are. BTC does, however, have higher visibility, which is most likely to result in higher pricing than other cryptocurrencies.
Production Costs
Even though BTC does not necessarily come in a physical form, it still has production costs attached to it. It takes a large amount of electricity and requires expensive hardware to perform mining. There is proof that the cost related to creating the currency is connected to its price on the market.
Currency Exchanges
On exchanges such as Coinbase and GDAX, investors can trade crypto like bitcoin or currency pairs. There are some cases where it is possible – if the platform is popular enough to do so – for the exchange to implement rules determining how currencies are added. This may affect the price of the cryptocurrency.
Regulations
As a result of the increase in public interest in bitcoin, governmental regulators have been taking into consideration the fact that these digital assets need to be classified. However, there is disagreement as some suggest that cryptocurrency should be classified as securities while others think it should be considered a commodity. This creates general uncertainty around the currency.
In addition, more products now use bitcoin as an asset, like exchange-traded funds, for example. This results in price fluctuations by increasing demand as more investors now have access to it, even if they cannot buy an actual bitcoin.
Bitcoin Price Prediction: Is It Reliable?
While some experts take some of the above factors into account when making predictions, they are certainly not the only things considered. Many make predictions based on the past paths the currency has followed. They also consider various statistical models when making their predictions.
For example, a well-known and well-respected bitcoin trader, who calls himself PlanB, has claimed that the ‘stock to flow’ model is often used to predict the prices of other commodities like gold and silver, which usually works for BTC. He explains that this is a result of the scarcity characteristic of Bitcoin.
However, although some of the world’s most acclaimed cryptocurrency experts use prediction techniques similar to those used for normal investments, stocks, and commodities, some still think that their predictions are without basis. It has been argued that bitcoin price predictions are less about analytical support and more about tempting investors by making crazy claims.
For instance, Peter Tchir, a macroeconomist, told Forbes that many experts who make extremely outlandish bitcoin price predictions have ulterior motives that are completely unconnected to any type of analysis. The macroeconomist suggests that these experts often take a bullish approach to crypto.
It is clear, though, that, at times, these experts make correct predictions. However, presenting their predictions as factual may be dangerous to investors and the like.
Considerations To Remember
As we’ve noted, it is important to keep the factors that affect bitcoin’s actual price in mind, and it is also worth noting what experts say (even if you take it with a pinch of salt). However, it must be mentioned that one should always be mindful that the arena cryptocurrency arena is tough to analyse and predict by its very nature.
There is a lot to consider, and it is almost impossible to keep up with the latest developments in crypto.
Furthermore, because the field is still relatively new, there is not much one can do in terms of basing predictions on the past or using models, strategies, or theories that have been shown to be of use in the cryptocurrency arena.
What Are The Upcoming Bitcoin Price Predictions?
So, with all of this in mind, let’s look at the predictions for the future beyond 2020. At the time of writing, December 2020, bitcoin currently stands at $19,397.40. And, it seems that, in general, analysts are positive about the path of the currency in the months to come. According to PlanB, who we mentioned earlier, the popular cryptocurrency will reach $100,000 by the end of 2021.
In an even more positive outlook, Tom Fitzpatrick, a Citibank analyst, has a bitcoin price prediction that soars far higher than PlanB’s. The analyst expected the price to hit around $318,000 in 2021. Between these two bitcoin price predictions is a forecast by Bloomberg strategist Mike McGlone, who thinks the cryptocurrency’s upward movement will continue until it reaches $170,000 in 2022.
What Else Are Experts Predicting?
Those experts who make a point to ensure they provide a bitcoin price prediction often also make other predictions relating to the cryptocurrency space. For example, Henri Arslanian – Global Crypto Leader and Adjunct Professor at the University of Hong Kong – made ten predictions for 2021. Here are some of the things he expects in the upcoming year:
- Stablecoins are expected to become more prominent in the arena of cross-border transactions.
- The cryptocurrency arena is becoming increasingly more institutionalised, and this trend is likely to continue, with those with financial backgrounds playing a bigger role in the arena (rather than the space being only for those with tech backgrounds).
- More hedge funds are expected to talk up bitcoin as a store of value.
- Cryptocurrency will become even easier to buy, even for those who are not fully clued up about how the crypto market works. The fiat-to-crypto market will increase.
- There will be developments in the arena of cryptocurrency taxation.
- Private banks are likely to begin making plans for the adaptation to crypto.
It seems there is a lot to come in the cryptocurrency arena, and many agree that things can only go upward.
Bitcoin Price Predictions: What Should We Do With Them?
Regarding bitcoin price predictions, it seems there is a lot of debate. While some think that they are clear indicators of when you should and shouldn’t invest in the currency, others believe that the predictions are shrouded with ulterior motives of experts who may benefit from people investing in the currency. Furthermore, some believe that predictions don’t count for more than hopeful thinking, as they are not based on enough analysis.
These experts are often quite successful in the cryptocurrency arena, and as such, their opinions must count for something. It is worth considering their bitcoin price predictions but taking them with a pinch of salt. When deciding to invest, you should also consider the real factors that affect the currency’s price to determine whether you think that predictions are realistic.
