This year has been a wild ride for anyone who has invested in the bitcoin market or even been looking at it. The world's most valuable virtual currency in December was trading at more than $ 23,000.
When the US started dealing with Covid-19 in early March, Bitcoin was below $ 4,000. For owners or sellers, it is a tremendous source of profit and loss. For those (like me) on the sidelines, it's an entertaining market show, tinged with jealousy and dizziness.
Despite that tremendous fluctuation in the price of bitcoin, in a generally upward direction, 2020 was also a year of relative maturity for a currency that, after all, has only traded for a decade. From my position as editor of FIN, a fintech newsletter, here are what I see as the crucial trends for bitcoin in 2021.
1. More mainstream acceptance
The use of Bitcoin in everyday life has always had a chicken-egg problem: very few use it or accept it because ... very few use or accept it in the first place.
But 2020 saw a surprising evolution in the adaptation of bitcoin. Leading fintech companies, from Square's $ 50 million investment in bitcoin to PayPal that allows its users to buy and sell bitcoin, gave it a stamp of approval.
In 2021, we are likely to see an extension of this conventional hug. Look for at least one major bank in the US or Europe to advertise some kind of system where you enable bitcoin purchases or agree to hold digital assets for your customers.
2. Competition from Big Tech
Whatever bitcoin may or not have accomplished in its decade of existence, it has forced a lot of big, global entities to think about offering an international digital currency.
Every company involved in the payment space understands not only that there is a market for digital payments still up for grabs, but that payments involving different currency markets have the most potential. That’s because currently such transactions can take days to resolve, and often involve hefty fees.
Bitcoin has demonstrated, if embryonically, that a global digital currency can dramatically streamline that process. This year, both Facebook and Google — companies with a massive global reach that bitcoin can only dream of — moved forward with big digital currency plans.
Tech offerings like Facebook’s Diem aren’t exactly the same as bitcoin, but if they start to catch on in 2021, they may eat a little into bitcoin’s growth.
3. Competition from central banks
This year, the Bank for International Settlements issued a report and survey indicating that 80% of the world's central banks are working on some form of digital currency.
China has taken digital currency experimentation much further than any other nation. Recently, in the eastern Chinese city of Suzhou, west of Shanghai, a lottery was held in which 100,000 residents received 200 renminbi (about $ 30) through a digital wallet. They were encouraged to link their digital cash to their bank accounts, and if they didn't spend their digital cash within a few weeks, it disappeared - both great techniques to advance the experiment.
As China moves towards the national adaptation of the digital yuan, it is likely to reduce the demand for bitcoins and other independent cryptocurrencies. Next year you may see similar experiments in other countries.
4. A new regulatory playing field
The administration of President-elect Joe Biden will have higher priorities in its first 90 days than regulation of cryptocurrency, and of course the mood and experience of Congress on the subject is difficult to read.
The natural assumption is that a Democratic administration will regulate more strictly than a Republican administration, although some have claimed that Biden will be "good for crypto."
Maybe, but Bitcoin enthusiasts tend to overlook issues like anonymity and its possible use for fraud; For regulators, those are very serious concerns.
Biden's team might as well find a more comprehensive and rational way to regulate cryptocurrency, but I wouldn't bet on any favoritism towards bitcoin in particular.
5. Continued volatility.
Because the value of bitcoin is not directly tied to any obvious real-world phenomena (such as fiscal or monetary policy), it can appreciate or depreciate in ways that are difficult to predict or even explain.
As an investment, this makes it difficult to recommend for anyone who wants to avoid large losses. Some say that bitcoin could hit $ 50,000 next year, and while that seems extreme, it isn't out of the question if investors move money from other assets to bitcoin.
Of course, it is possible that the price will go in the opposite direction in 2021. The only thing that seems certain is that the wild ride of 2020 will be repeated, so buckle up.