Bitcoin $20,000: Is This Time Different?

Bitcoin ($BTC) is on another bull run. As of writing this, the price of Bitcoin is $18,100 on Gemini.com’s exchange[1], one of the largest U.S. exchanges. Just hours ago Bitcoin broke $18,000, a level that it has not hit since the 2017 bull run. Is this run-up legitimate, or is Bitcoin due for another catastrophic correction? Before trying to predict the future, we need to know what happened before.

Bitcoin’s 2017 Bull Run

In late 2017, Bitcoin saw an extensive market run up. In less than 3 months, the price of BTC flew from around $3,800 to almost $19,000. However, as seen from the chart below, Bitcoin could not quite hit the milestone price of $20,000. As fast as it rose, BTC fell down to $8,100 in Jan 2018. It never recovered, and continue to slowly fall over the year. The price finally bottomed out at $3,332.

Many called this the end of Bitcoin. Some claimed that it was a fun experiment, but nothing will ever replace traditional fiat currency. Others said this market frenzy proves that Bitcoin, and cryptocurrency in general, is not a viable form of currency. In some ways, they are right. Currency cannot be as volatile has bitcoin as shown to be.

There were many reasons for the massive spike in Bitcoin’s price- market uncertainty from President Trump’s Trade Wars, continued low-interest rates due to Fed policy, as well as an influx of new cryptocurrency investors.

Price chart of Bitcoin's 2017 bull run.
Price chart of Bitcoin’s 2017 bull run.

Bitcoin’s 2020 Bull Run

Fast forward to the present- it is the end of 2020 and Bitcoin is making another run to $20,000. It seems like Deja Vu in many ways. 2020 was a year full of uncertainty from the coronavirus pandemic, coupled with the new presidential administration, many are pointing to the previous bull run and succeeding crash that followed. However, there are many signs that prove that this time- its different.

Bitcoin and Cryptocurrency Have Staying Power

For many people, the first time they heard about Bitcoin was in late 2017. This attracted a massive amount of investors that never bought a cryptocurrency before. “Tulip Mania” ensued [2], and the price rocketed to just under $20,000. However, this buying power was not enough to break the mighty price point of $20k, and it all came crashing down with panic selling.

This year is different. Bitcoin, for better or for worse, is now on the lips of nearly every investor young and old. Even after the crash, Bitcoin and cryptocurrency proved that it was here to stay. When looking at total Market Capitalization of the entire cryptocurrency market, it has been growing steadily the entire year. Even when looking further back, since 2019 the market has been able sustain a higher TMC than pre-bubble prices. In short, Bitcoin and cryptocurrency in general is not going away.

Total Market Capitalization of the cryptocurrency market
Total Market Capitalization of the cryptocurrency market

Decentralized Finance

One of the hottest parts of cryptocurrency to develop in 2020 has nothing to do with actual Bitcoin- Decentralized Finance (also called DeFi). DeFi essentially offers many traditional financial services, trading, savings accounts, loans, etc, through decentralized services. Put simply, DeFi platforms give access to financial platforms with no actual owner. Think of a bank account that isn’t administered by a bank- offering you unilateral and independent control.

These services all use Ethereum ($ETH). This is important to Bitcoin, because while not directly used in the technology, there are plenty of trading platforms, swap contracts, and other systems tracking the price of Bitcoin in DeFi. Plus, Bitcoin and cryptocurrency are hardly separable- any positive trend for cryptocurrencies in general will be positive for Bitcoin.

DeFi has seen amazing growth the past year. The chart below shows the total amount of value locked into various DeFi products. In November 2019, there was only $627MM invested in DeFi products. As of November 2020, there is over $13 billion! This shows clear growth in confidence in cryptocurrency in general, a great sign for Bitcoin and the entire space.

Chart from DeFi Pulse showing the amount of value locked into decentralized finance
Chart from DeFi Pulse showing the amount of value locked into decentralized finance

A Store of Value

While this bull run may be legitimate, it is doubtful that $20,000 will become the new floor, or new normal price for BTC. Stabilizing at such a high price point after a steep increase is unlikely, however we are going to see a new normal for Bitcoin. $10,000-$20,000 will be the new normal price range for Bitcoin. A return to sub-$10k prices would require ANOTHER crash that frankly is not likely with the elevated interest in crypto overall.

It is often touted that Bitcoin is no longer a method for transactions, but a store of value. This essentially would equate BTC to “digital gold”, a safe haven for your money during a troubled market. While it is hard to say if the Store of Value theory will hold true, but what is true is that Bitcoin will never be seen as a primary transactional instrument. Unfortunately, the technology behind BTC is from 2008, so it is limited in scope and unable to meet the demands of the modern market. Plus, there are a number of alternative coins that are better at “being money”.

In all, cryptocurrency is here to stay. Breaking $20,000 will be monumental for cryptocurrency in general, so I will be rooting for it all the way up.

Article Sources

  1. Gemini.com “https://gemini.com/prices/
  2. Investopedia.com “https://www.investopedia.com/terms/d/dutch_tulip_bulb_market_bubble.asp

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