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Why Bitcoin could collapse 50%

·4-min read
Image: Getty
Image: Getty

2020 was a challenging year for so many reasons but one highlight of the year was bitcoin. It smashed its all-time high, topping out at just over US$29,000 by the year’s end. And there’s no sign of slowing down, now at over US$34,000 as at January 11, 2021, according to Coin Market Cap.

But what’s behind these highs? How long can we expect this run to continue? And most importantly, what does the future hold for the price of Bitcoin (BTC)?

What is behind the latest bitcoin boom?

The cryptocurrency market has matured significantly since the previous all-time high in 2017. And it sits in stark contrast to the uncertain future the world is dealing with, as it grapples COVID-19. Central banks are clicking the money printer button like Robinhood customers are selling put options on Boeing stock.

While there has been some healthy growth in the past year led by larger institutional investment and a halving back in May, over the past month we’re now seeing bitcoin fly.

One year ago, the price of BTC was US$7,357 and it increased almost four-fold (364 per cent). Market capitalisation has jumped even higher, signaling stronger demand for the digital currency as the halving slowed down circulation.

We’ve seen major publicly listed company Square Inc. - a company outside of the crypto space – diversify its portfolio by investing in bitcoin. Several other institutional investors bought up bitcoin last year including GreyScale, which now holds over US$14 billion worth of BTC, and MicroStrategy recently bought over US$1 billion in BTC.

It’s these institutional investors that have really pushed Bitcoin’s rally and this opinion is shared by the vast majority (72 per cent) of the panellists in Finder’s latest Cryptocurrency Predictions report.

A mass exodus from the fifth-largest digital currency, Ripple Labs Inc.’s (XRP) could also be fueling the bitcoin rally, following the U.S. Securities and Exchange Commission (SEC) lawsuit and major crypto exchanges delisting the currency.

And now there’s talk of regulation coming, following a reported shake up in the SEC, and a new application for a bitcoin ETF filed by VanEck.

Is it too late to buy?

But it may not be too late to consider jumping in and riding these highs. If you’re looking at getting into Bitcoin, the majority (87 per cent) of our experts think it’s not too late for retail investors to climb aboard the Bitcoin rocket, with only 13 per cent saying the time has passed for retail investors to get in on the action.

The vast majority of the panel are also advising to either buy (46 per cent) or hold (43 per cent) BTC right now, with only 11 per cent saying it’s time to cash out.

This doesn’t mean it’s not a super volatile and high risk asset. Because it certainly is. So make sure you do your research and consider your options before jumping in.

What to worry about with the end of the bull run

Bitcoin's 2017 peak valuation was short-lived, dropping 80 per cent within the following 12 months. I’m not here to say that the price isn’t going to come down. It probably will and in a big way. But that’s part and parcel with investing in Bitcoin: one day you’re super high, the next you’re at the lowest lows and I think someday soon (maybe over the coming months) you’ll see a sharp (50 per cent or more) drop from its peak valuation. Why? Because all parabolic climbs are followed by sharp corrections.

As far as what will cause this bull run to end, personally I think that drops in the share market, higher returns on other assets, increased regulation and the general overextension of the market will all play a role in pulling the price of BTC back down to earth. But it won’t stay down for long.

Now, I’m a little more bullish than the average panellist with my views on what the future holds for the price of Bitcoin, but if we look at the average forecast from the panel of experts, they have Bitcoin ending 2021 at US$51,951 per BTC. Me, personally, I think it’s going to beat that easily and finish the year around the US$65,000 mark.

If this has got your investing juices flowing you should check out the full Finder Cryptocurrency Predictions Report, where we spoke with 47 fintech leaders and experts to get their views on what the future holds for Bitcoin and crypto in general. We share our thoughts on whether governments are going to come down on Bitcoin and try to outlaw it, if gold or Bitcoin is a better store of value, the price of altcoins and more.

Fred Schebesta is co-founder of Finder, Australia’s most visited financial comparison website, and the Finder App launching in February 2020. Join the wait list here.

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