Bloomberg analysts are the latest to jump on the bandwagon of experts expecting bitcoin to revisit its record high in 2020.
The bold prediction is largely based on the fact that price action seen over the last 2.5 years looks similar to the patterns over the 2.5 years following the leading cryptocurrency’s rise to record highs in December 2013.
“After 2014’s 60% decline, by the end of 2016 the crypto matched the 2013 peak. Fast forward four years and the second year after the almost 75% decline in 2018,” noted Bloomberg Crypto in a monthly report. “Bitcoin will approach the record high of about $20,000 this year, in our view, if it follows 2016’s trend.”
Let’s take a look at those patterns.
2013 to 2017
Bitcoin printed a lifetime high above $1,100 in early December 2013 and fell by over 55% in the following year.
The bear market ran out of steam at lows near $150 in January 2015 and bitcoin turned higher in the fourth quarter of that year. Prices then rose back to levels above $700 ahead of its second mining reward halving (a coded-in supply cut), which took place on July 9, 2016.
2017 to present
Having topped out at a record high of $20,000 in mid-December 2017, bitcoin fell by 75% in 2018. The cryptocurrency bottomed out near $3,100 in December 2018 and rose 90% in the following year.
Moreover, prices remained largely bid (barring the March sell-off) in the five months leading up to the third halving on May 11, 2020. The cryptocurrency clocked highs above $10,000 in early May.
With bitcoin tending to move in these long-term cycles, prices may indeed challenge $20,000 this year, as expected by Bloomberg.
“Something needs to go really wrong for bitcoin to not appreciate,” the analysts added in the note.
Macro factors
“This year is about increasingly favorable technical and fundamental underpinnings for bitcoin,” Bloomberg’s note continued.
Indeed, with increased institutional participation and other factors accelerating the maturation of the bitcoin market, the odds appear stacked in favor of continued upward move in prices.
Open interest, or open positions in futures listed on the Chicago Mercantile Exchange (CME), which is considered synonymous with institutions and macro traders, has increased by over 500% so far this year, according to data provided by the crypto derivatives research firm Skew.
Further, bitcoin-based exchange-traded instruments like Grayscale’s Bitcoin Trust (GBTC), the largest by assets under management (AUM), have recently been on an accumulation spree. (Grayscale is a subsidiary of Digital Currency Group, the parent firm of CoinDesk.)
“So far this year, its increasing AUM has consumed about 25% of new Bitcoin-mined coins vs. less than 10% in 2019. Our graphic depicts the rapidly rising 30-day average of GBTC AUM near 340,000 in Bitcoin equivalents, about 2% of total supply. About two years ago, it accounted for 1%,” Bloomberg said.
The trust has accumulated coins 1.5 times the total coins mined since the May 11 halving, according to crypto analyst Kevin Rooke.
Put simply, demand looks to be outstripping supply and that is a classic factor driving price rises, regardless of the asset.
Additionally, the unprecedented monetary and fiscal stimulus lifelines launched by central banks and governments across the globe to counter the coronavirus-induced economic crisis and joblessness is widely expected to push up inflation, leading to a further increase in demand for bitcoin.
Most analysts consider bitcoin a hedge against inflation, given its supply is capped at 21 millions and its monetary policy is set in code to cut cut by 50% every four years.
At press time, bitcoin is changing hands near $9,500, representing a 1.4% decline on the day.
Disclosure: The author holds no cryptocurrency at the time of writing.