For the past five years, one of the most captivating storylines in the world of finance has been the dramatic rise of the price of Bitcoin, which is the most prominent of all digital currencies today. Just five years ago, the price of Bitcoin was trading for under $500 and was considered to be a rather obscure form of payment.
Since then, the price has gone through some massive ups and downs but as of February 2021 had increased by more than 100x as it was trading for over $51,000 per coin.
Many people expect that the price of Bitcoin will continue to grow in the future. While many experts believe that the growth potential is significant, there is bound to be volatility in the coming years as well. For the rest of 2021, the value of Bitcoin will be impacted by a variety of different factors.
Institutional Investment
One of the largest storylines surrounding Bitcoin over the past year has been the increased prevalence of institutional investment. Some of the companies that have made major investments into the digital currency include both Tesla and Mass Mutual, which invested more than $100 billion into the coin.
Other billionaires and prominent investors including Ray Dalio have also continued to discuss the promise of Bitcoin and other crypto currencies. This acceptance by reputable firms is expected to continue and will help encourage an increase in value in the coming year.
New Products to Acquire or Invest in Bitcoin
One of the concerns that people have had in the past with Bitcoin is that it is possible to lose your Bitcoin and never have it recovered. All people have heard of stories of individuals losing their online passwords and keys that are needed to access their Bitcoin.
In the coming years, there is expected to be many more ways that people can invest in this product through ETFs and funds that hold Bitcoin or simply track the value of it. This will give people a way to invest in Bitcoin without having to worry that their coins have been lost.
Limited Supply and Barriers to Entry
You should also expect to see an increase in Bitcoin because of its limited supply. One of the factors that get people excited about this coin is that there is a low theoretical supply, which compares to traditional forms of currency that ultimately have an unlimited supply if the governments continue to print more.
Further, the process of mining Bitcoin is getting harder and more expensive to do, which precludes more entering the market. Due to lower supply and continued high demand, the price could continue to escalate.
Inflation Hedge
With interest rates at historical lows and there a lot of uncertainty in the global economy, the concern about inflation is going to continue to grow. The use of Bitcoin has continued to be a way that people have been able to hedge against this risk. If inflation figures do increase in the coming year, there is bound to be demand from people that want to invest in Bitcoin to help hedge against this risk.
Investors Accept Volatility
There is a common practice with investors to sell their stock or other investments if the value appears to be declining. This can then result in a loss and further declines. While this is natural to want to exit a position before you lose too much, there seems to be more acceptance when it comes to the volatility for Bitcoin. Due to this, people are less likely to panic and sell as there is long-term confidence in the currency. This could help to avoid major long-term crashes in the future.
Bitcoin has continued to be a great investment for those that are looking for long-term growth. Many continue to believe that Bitcoin will be a good investment throughout 2021 as well. Overall, there are five factors that will impact the value of Bitcoin in the year to come.
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