Commodity Blog

Bloomberg magazine has released the December issue of its monthly “Crypto Outlook.” This month’s edition forecasted Bitcoin’s performance for 2021 based on data analysis and other factors.

According to the analysis by Mike McGlone, Bloomberg senior commodity strategist, the support line for Bitcoin (BTC) in 2021 is expected to be $10,000, while the resistance line will likely be $50,000. Taking into account macro factors, McGlone said that Bitcoin reaching the $40,000 level sounds reasonable.

Reasons behind Bloomberg Bitcoin bullish forecast

According to the analyst, Bitcoin market capitalization in 2021 can reach $1 trillion, and BTC price at the same level is about $55,000 due to the following reasons.

Institutional demand

One of the main factors behind the Bloomberg Bitcoin bullish forecast was the rise in demand for cryptocurrency-related financial derivatives.

In particular, the amount of assets under management of the US Grayscale Bitcoin Trust (GBTC), which attracts the attention of institutional investors, has increased significantly from $2 billion at the beginning of 2020 to $10 billion.

Meanwhile, open interest in CME Bitcoin futures surged from $120 million in 2019 to $1 billion in 2020.

Volatility

The following positive factors are Bitcoin price volatility, which is on a downward trend at the time of writing.

High volatility is synonymous with the cryptocurrency market. However, according to Bloomberg’s analysis, the 260-day price volatility comparing the US NASDAQ stock market and the BTC market was the lowest ever as of December 2.

The decline in Bitcoin volatility tends to lead to subsequent price increases. After the price volatility fell to a record low in 2015, a “bubble” came in which all cryptocurrencies soared more than 10 times towards the end of 2017.

In addition, according to Bloomberg’s regression analysis of BTC volatility, “by 2024, when the next halving is reached, BTC’s price volatility may be at the same level as Gold.” High liquidity and volatility stability ensure the soundness of the market and thus encourage the entry of more well-funded institutional investors.

Enormous impact of large-scale monetary easing

As many analysts and economists have pointed out, the impact of large-scale monetary easing measures following the global covid-19 pandemic has spurred risk appetite in the equity and Bitcoin markets. McGlone cited this as the biggest factor.

In particular, the effects of quantitative easing (QE) and negative interest rates in banks are significant. And as a price to support the world economy, the world’s key currency “US dollar” has sacrificed its value by mass printing. Inflation resistance under such circumstances is a major positive factor for Bitcoin.

Debt as a percentage of gross domestic product (GDP) in each country is on the rise, and interest in Modern Monetary Theory (MMT) is rising rapidly. As US dollar holdings and dollar-denominated foreign exchange reserves in other countries are also exposed to inflation risk, interest in the gold and Bitcoin markets, which are alternative assets as hedging instruments, is expected to increase in the future.

Supply reduction and scarcity

McGlone also cited a decrease in supply due to half-life as a positive factor.

In contrast to legal tenders such as dollars and euro that can be issued reflecting the intentions of the central government and banks, the maximum number of Bitcoins issued is set at 21 million, and the amount of new issuance decreases every four years. The “halving” of BTC accelerates its rarity. By 2024, when the next halving comes, the annual new issuance of BTC will be 1%.

At the moment, major US settlement companies such as PayPal and CashApp are buying bitcoins, led by Grayscale Investments trusts, and it can be said that prices are being pushed up in terms of supply and demand.

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