What Will Drive the Bitcoin Price In 2021?
An analytical guide to investing in Bitcoin in 2021
What will happen to the Bitcoin price in 2021? Since cryptocurrencies are decentralised, traditional investors have always wondered: What drives the Bitcoin price?
Stocks or bond prices, for example, are influenced by economic factors such as inflation, unemployment or interest rates, but this is not the case with cryptocurrencies because they are entirely independent.
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But what really drives the Bitcoin price?
There are three main factors that most affect the Bitcoin price:
- Supply and demand
- Bitcoin adoption
- Bitcoin regulation
Here at Trading Education, we analysed these three factors and below we will show in detail what we found out.
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What makes Bitcoin so special to be considered an investment option by investors? Bitcoin is the first cryptocurrency launched and continues to be the leader in cryptocurrencies. Bitcoin has experienced growth of 9,000,000% over the last decade and has been selected as the best investment of the decade, beating rivals like stocks, bonds, gold and indices.
Throughout its history, the price of Bitcoin has risen and fallen, as its nature is volatile. However, in its early years, Bitcoin had no value, but its value has grown over time, making early investors millionaires and even billionaires. The price of Bitcoin is still expected to rise, which is why Bitcoin is a good investment option for investors.
Bitcoin leads the crypto market cap with $202 billion. Source: Statista
What Drives Bitcoin Price?
There are 18,539,543.75 bitcoins at the moment, and the maximum number of Bitcoin that will ever exist is 21 million. The halving of block rewards affects the price of Bitcoin by creating the so-called "artificial inflation", but at the moment when 21 million bitcoins will be mined, there will be no mining activity anymore. Consequently, mining will not affect the price of Bitcoin.
However, it is anticipated that the last Bitcoin will be mined in 2140.
But, let's see what really affects the price of Bitcoin? Or what drives Bitcoin prices?
3 Factors will drive the Bitcoin price in 2021
Factor 1: Supply And Demand
Who is Bitcoin correlated with?
Bitcoin is correlated with other cryptocurrencies like Ethereum, for example. When two assets are correlated with each other, they move the same way.
Cryptocurrencies are generally correlated with each other. That is why investors have started to see them all as a common asset.
Moreover, in cryptocurrency things have gone a long way and there is no need to have a separate wallet for each cryptocurrency, but you can store your coins in one a wallet like eToro, Binance, Kraken, etc.
Ethereum-Bitcoin 1 year realised correlation is 88% on average. Source: Skew.
The more demand there is for cryptocurrencies, the higher the price goes. That’s the basic rule in economics. Bitcoin is scarce, meaning that is rare and demandable. And it is useful also, which makes it valuable.
Factor 2: Bitcoin Adoption
Usually, when there is sensational news about cryptocurrencies, their price increases. People may have uncertainty about the future of Bitcoin; therefore, the adoption of Bitcoin is critical to building confidence among people.
Bitcoin adoption gives people confidence because when they see big financial companies investing in Bitcoin, it becomes clear that the future of Bitcoin is secure. Thus demand increases and price increases as well.
And 2020 confirmed this fact since this year, large financial companies invested in Bitcoin spiking the price up.
But the most significant impact on the price of Bitcoin in 2020 had the news that Paypal integrated cryptocurrencies into its platform on October 21. After the announcement, Bitcoin reached $12,817.17, an 8% rise within that day. This was the highest price since July 2019.
Bitcoin price curve rose after October 21 when Paypal announced crypto integration on its platform. Source: Business Insider.
However, Bitcoin did not stop here continuing to grow and reaching $15,592 on November 11, and at the moment, it stands at $15,502.
So, the news that Paypal is integrating cryptocurrencies in its platform gave a drastic increase to Bitcoin price, and now it is not precisely known where it will stop.
“All banks will now be in a race to service crypto”, said on Twitter billionaire investor Mike Novogratz calling this the biggest news of the year in crypto.
Factor 3: Bitcoin Regulation
In various countries, Bitcoin is regulated differently. In the United States, the U.S. Commodity Futures Trading Commission (CFTC) recognises Bitcoin to be a commodity. In comparison, the Securities and Exchange Commission (SEC) lists cryptocurrencies as securities. This variability in Bitcoin regulation creates uncertainty.
This could affect the price of Bitcoin as it will increase insecurity among people due to the fact that cryptocurrencies are not regulated the same way, and in some countries are wholly banned because they are considered suspicious.
Regulatory uncertainty makes investors think about the way they will get taxed after selling their crypto and will make them HODL, or they will be withdrawn entirely and not invest at all. This will cause a bearish market.
For instance, in December 2017, South Korean authorities decided to regulate crypto assets, causing a 15% drop in the price of Bitcoin and great losses in market cap for Ethereum, Litecoin and Ripple.
Crypto prices and market cap drop in January 2018 amid South Korean regulations. Source: Coinmarketcap.
However, there are cases when the regulation and legalization of cryptocurrencies affect them for good. For example, when Japan in 2017 came out with the news that Bitcoin would be legalized as a payment method then, the price increased by 96% thus making Bitcoin attractive as an investment for Asians.
How to Invest in Bitcoin for 2021
Given that Bitcoin adoption is on the rise, the price of Bitcoin is likely to continue to rise in 2021. Following the integration of large companies like Paypal into cryptocurrencies, it is expected that other financial institutions and banks will join cryptocurrencies as they will have no choice but to adopt. Consequently, demand will continue to grow along with the price of Bitcoin.
But how much can the price of Bitcoin go in 2021?
“Bitcoin will tap $100K-288K before Dec 2021”, stock-to-flow (S2F) model creator Plan B said recently. According to him, over time, Bitcoin supply will fall, and inflation will rise, consequently, Bitcoin will increase in value.
Why $100,000 - $288,000 before December 2021?
Well, let’s go back in 2016 when Bitcoin halving took place.
In July 2016, when halving happened, the Bitcoin price was at $600, to reach the record $20,000, just 17 months later in December 2017.
Last time Bitcoin halving took place was in May 2020, which was the third one in the history of Bitcoin. Back then the price of Bitcoin was $8,700, and within six months it rose to $15,500, recording a 78% increase.
Considering how the market reacted to halving in 2016, Bitcoin adoption, the increase of demand and the decrease of supply as time goes by, Plan B might be right, and we might witness Bitcoin price reaching anywhere between $100,000 - $288,000 by December 2021.
And if Bitcoin reaches $100,000 its market cap will be around $2 trillion.
If the above expectations are right, Bitcoin investors will generate a strong return ahead. But if the economy is badly affected, then bitcoin price will certainly drop.
Read more: Bitcoin Price Prediction Forecast
Bitcoin Price Beyond 2021
The Crypto Research Report on their June edition has predicted the price of Bitcoin to rise to $19,044 in 2020, $341,000 in 2025, and $397,727 in 2030.
Bitcoin, Ethereum, Litecoin, Bitcoin Cash and Stellar price predictions by the Crypto Research Report. Source: Crypto Research Report - June edition.
The Crypto Research team notes on the report that they believe Bitcoin is still at the very start of its adoption curve.
“The price of $7,200 at the end of 2019 suggests that bitcoin has penetrated less than 0.44% of its total addressable markets. If this penetration manages to reach 10%, its non-discounted utility price should reach nearly $400,000”, says the report.
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- Bitcoin is the first cryptocurrency to be released and continues to be the leader.
- Three main factors affect Bitcoin price the most: supply and demand, bitcoin adoption, bitcoin regulation.
- Bitcoin leads the crypto market cap with $202 billion.
- The maximum number of Bitcoins that will ever exist is 21 million, and it is predicted that the last Bitcoin will be mined in 2140.
- The most significant impact on the price of Bitcoin in 2020 had the news that Paypal integrated cryptocurrencies into its platform on October 21, spiking up the Bitcoin price.
- Uncertainty affects cryptocurrencies negatively causing a drop in prices.
- Bitcoin could reach $100,000 - $288,000 before December 2021, according to Plan B.
- If Bitcoin reaches $100,000, its market cap will be around $2 trillion.
- Crypto Research Report says that Bitcoin could reach $397,727 in 2030.
We hope you have found this guide helpful and if so share it, since there might be someone else who would like to benefit from it.
And, lastly, If you want to read more articles and gain more knowledge about cryptocurrency trading, check out our crypto trading articles voluminous sector.
Disclaimer: Cryptocurrencies are highly volatile. Your capital is at risk