The Path of Least Resistance for Bitcoin

The path of least resistance for bitcoin is on the higher side, and the cryptocurrency could more than double from its current value in 2021, according to Bloomberg analysts. 

"Bitcoin will maintain its propensity to advance in price into 2021, in our view, with macroeconomic, technical and demand [versus] supply indicators supportive of $50,000 (USD) target resistance, implying about a $1 trillion market cap," noted Bloomberg Crypto in a monthly report.

The demand-supply mechanics are currently skewed bullish, as only 900 new coins mined each day compared with 1,800 in 2017, and institutional participation is increasing. 

Notably, assets under management at Grayscale Bitcoin Trust recently breached the $10 billion level, having begun the year at $2 billion. The trust has bought nearly 70% of new bitcoins mined since May 11, when the cryptocurrency underwent its third reward halving. 

Halving events will continue taking place until the reward for miners reaches 0 BTC. Since Bitcoin's value representation has 8 decimal places, after the 33rd halving, the value of the reward will hit precisely 0 BTC. 33 halving events every 4 years adds up to 132 years total. The last Bitcoin to be mined into existence will be mined in the year 2140. It will be the 21 millionth Bitcoin to come into existence, and last, after which point it will be impossible to create anymore. 

From then on, Bitcoin will become truly 'deflationary', since mining new coins will no longer be possible, and if owners keep on losing their private keys, as they currently are, then the supply would further deflate by that lost-keys ratio. It is not possible to copy or forge Bitcoins, and the total supply is strictly limited. 

All transactions are written in blocks, and nobody can spend coins that belong to someone else's bitcoin address. That is where "scarcity" comes into play. The dictionary definition of scarcity is when something is difficult to come across in nature or the lab; very similar to precious metals. Once something becomes scarce enough, it can be used as money.

Open interest in the bitcoin futures listed on the Chicago Mercantile Exchange has risen above $1 billion for the first time on record compared with closer to $120 million in 2019, as per data source Skew. 

Bloomberg analysts said they expect these trends to continue in 2021 because major central banks and governments are unlikely to scale back or halt their inflation-boosting stimulus programs anytime soon. The unconventional policies adopted by authorities to counter the coronavirus-induced slowdown have boosted demand for bitcoin and gold this year. 

Past data also favours a rally to US $50,000, according to Bloomberg. "The 2017 advance followed a 2016 supply reduction to 1,800 coins a day, and similar occurred in 2012-13," Bloomberg analysts noted.

History looks to be repeating itself. Bitcoin's recent move to a new record high has happened roughly seven months following the May 11 reward halving. Similar price action had unfolded following the July 2016 supply reduction.

While the odds appear stacked in favour of the bulls, the cryptocurrency remains vulnerable to a March-like panic sell-off in the global equity markets. However, Bloomberg analysts do not see prices falling below US$10,000. 

"The $10,000 mark has shifted to a critical support level after serving as the crypto's resistance mark since 2017," the report says. 

Bitcoin fell sharply to US $3,867 in March as global stock markets collapsed on fears of coronavirus-led recession, boosting demand for cash. Prices quickly recovered to US $10,000 ahead of the May 11 reward halving.

With Bitcoin breaking the previous set all-time high, we are seeing a move into uncharted territory. The psychological boost that would come with a move like this could propel Bitcoin aggressively higher.