BTC price took an unexpected bearish turn in January, but are there any catalysts that could support a run to $100,000 in 2022?
The internet is full of Bitcoin (BTC) price predictions. For example, some analysts believe the flagship crypto will hit $1 million per coin in the next 10 years, while others believe the price of BTC will eventually drop to zero.
Without dwelling on the predictions that lie ahead in five years or more, let’s focus on what Bitcoin could do in, say, the next six months?
Again, predictions vary widely. For example, Antoni Trenchev, the founder of Nexo Finance, sees the price of Bitcoin reaching $100,000 by mid-2022.
At the other end of the spectrum is Carol Alexander, a professor at the University of Sussex, who thinks the price of Bitcoin could fall as low as $10,000, wiping out any gains it made in 2021.
Bitcoin trended almost in the middle of these two extremely distant predictions and at press time the cost to buy one BTC is close to $36,500 at Coinbase.
BTC/USD weekly price chart. Source: Trading View
Bitcoin circulation will increase by an average of 6.25 BTC per 10 minutes until the next halving in early 2024. This means that miners will produce around 900 BTC every day. As a result, by the end of June 2022, there will be a total of 162,900 BTC created in the year.
This would bring the total Bitcoin supply in circulation to around 19.078 million BTC. If the price of BTC is $100,000 by then, its total market capitalization would be nearly $2 trillion, up 128.50% from the opening valuation of the year. close to $875 billion.
Conversely, a drop to $10,000 would drop the Bitcoin market capitalization of total tokens in circulation to over $190 billion, down $685 billion, or about 78%, from the open. of this year.
So, the biggest question that comes to mind after looking at these mind-boggling predictions is whether it is even possible for Bitcoin to move violently towards any of the targets mentioned above. In my opinion, the answer is a BIG YES, mainly because the price of BTC has been notoriously volatile in the past.
Bitcoin quarterly returns. Source: Coinglass
One question to consider is whether or not investors are ready to pump nearly $1 trillion into the Bitcoin market over the next six months? Trenchev thinks they can because of the “cheap money” factor.
Sovereign currency devaluation remains a catalyst
Investors will have noticed that the valuation of the US dollar has recently recovered.
A popular economic indicator, dubbed the “US Dollar Index”, measures the strength of the greenback against a weighted basket of six foreign currencies – the euro (EUR), Japanese yen (JPY), British pound ( GBP), the Canadian dollar (CAD), Swedish krona (SEK) and Swiss franc (CHF) – jumped more than 7% to 96.22 last year.
US dollar index weekly price chart. Source: Trading View
It should also be noted that the dollar’s valuation only rose against fiat currencies, but against commodities, the greenback lost battle after battle.
For example, a recent report from the US Bureau of Labor Statistics indicates that consumers paid 7% more for everyday items in December 2021 than 12 months ago. In other words, inflation in the world’s largest economy has reached levels not seen before 1982.
This shows that the dollar is nothing but the best weak boxer in a ring competing with the six weakest boxers. Sure, the greenback won rounds against them all, but he also shunned real competition.
Speaking of competition, let’s compare its value to a rarer asset, gold.
Fiat currencies against Gold since 1900. Source: VOIMA
The image above also shows that almost all fiat currencies have lost their luster to gold. The big elephant in the room is inflation, which benefits investors who have been hoarding the precious metal – or any hard-money equivalent – against the current downtrend in currencies like the dollar.
Currently, approximately $40 trillion is circulating in the markets, which includes all physical silver and money deposited in savings and checking accounts. Meanwhile, investments, derivatives and cryptocurrencies exceed $1.3 quadrillion.
So yes, there are enough greenbacks available in the market to pump the Bitcoin market another trillion dollars, so that its cost per unit is $100,000 over the next six months.
Why hasn’t BTC reached $100,000 already?
Before even discussing this argument, it is wiser to look at Bitcoin’s market cap performance over the years.
Six-month BTC/USD market cap chart with over $100 billion in rallies. Source: Trading View
In the six-month period chart above, it can be seen that there has not been a single instance where Bitcoin’s market capitalization has increased by more than $1 trillion. Likewise, there has not been a single instance where Bitcoin’s market valuation has fallen by more than $190 billion in six months, as required if the price of BTC drops to $10,000.
Although it has neither risen nor fallen drastically, the Bitcoin market – according to historical data – attracts more capital as it spits, which indicates why its unit price has increased by more than 14,250 % to date since January 2014.
Now, getting back to the “why didn’t this happen” argument, there seems to be only one answer: uncertainty. And the uncertainty has many branches, ranging from regulatory issues to fears that the Bitcoin market needs a correction after recovering for nearly two consecutive years.
M2 money supply weekly chart. Source: Trading View
As the Fed unwinds its quantitative easing policy to control inflation, it effectively pulls excess dollars out of the market. And as the markets – hypothetically – run out of liquidity, they increase it by selling their most profitable investments, be it stocks, real estate, Rolex watches or crypto.
Therefore, the next six months could prove to be a seesaw between those who need money and those who don’t. The inflation driven by the devaluation of the dollar could prevent many investors from selling their assets, including Bitcoin. But with the Fed turning off its liquidity take, crypto markets may struggle to attract new funds.
This leaves Bitcoin with investors and companies that have excess liquidity in their treasuries and have sought to deploy it into easily liquefiable assets.
So far Bitcoin has attracted big names like Tesla, Square, MicroStrategy and others. So, naturally, it would take at least the willingness of a popular Wall Street firm to add Bitcoin to its treasury to allow BTC to push towards $100,000.
Waiting for the retail boom
Meanwhile, as inflation creeps into people’s daily lives, their likelihood of adopting durable assets to protect their savings could also be a boon for the Bitcoin market. For example, BTC’s rise to $69,000 last year coincided with an unprecedented spike in retailer interest, according to a Grayscale investment report.
The American firm surveyed 1,000 investors and found that 59% were interested in investing in Bitcoin. Meanwhile, 55% said they bought the assets between December 2020 and December 2021.
The Fed’s “taper tantrum” is impacting investor confidence
The most commonly discussed reason for Bitcoin’s recent drop from $69,000 to $34,000 is the US Federal Reserve’s decision to end its $120 billion-a-month asset purchase program earlier than foreseen. This should be followed by at least three interest rate hikes from their current near-zero levels.
These loose monetary policies have ended up pumping in about $6.5 trillion since the coronavirus-induced global stock market crash in March 2020. Due to excess liquidity, the value of the dollar has fallen while riskier assets, including Bitcoin, have turned bullish.
According to Micheal Howell, founder of Crossborder Capitalial, excess funds in the market “had to go somewhere”.
Bitcoin addresses with non-zero BTC balance. Source: Glassnode
Boom or bust, here’s what needs to happen
If Bitcoin were to hit $100,000 by the end of June 2022, here’s what should happen.
- The M2 money supply remains at an all-time high.
- Planned interest rate hikes fail to keep inflation below the Fed’s 2% target.
- The number of non-zero bitcoin wallets continues to rise to new highs.
- More and more companies are adding BTC to their treasuries.
Meanwhile, Bitcoin could fall to $10,000 if:
- Long-term investors decide to get rid of Bitcoin to raise funds.
- Regulatory issues and a sharp equity price correction are weighing on crypto prices.
- Certain unforeseen market manipulations or black swan events cause the price of BTC to drop, such as the March 2020 flash crash.