If you were to poll the crypto community and ask if they believe that Bitcoin can go above $100k, the vast majority would say yes. But why does such certainty persists – and is it based on anything but ambition and blind faith?
To tell the truth, it isn’t. At least there are no obvious grounds to believe that Bitcoin will reach $100k. $20,000 is possible, even $50,000. However, if you dig deeper, you’ll find that BTC does indeed have the potential to cross the $100k mark in the next 18 months or 2 years. There are 3 reasons for that; let’s go over them one by one.
Like any other financial instrument, Bitcoin moves in cycles. In the traditional economy, it takes 7 to 11 years to complete the classic expansion-peak-recession-trough cycle, also known as the Juglar cycle. The 7 to 11 year period separates two crises.
For example, the dot-com market crash happened in 2000 and the real estate bubble burst in 2008, triggering the financial crisis. In 2020 we’ve got the coronacrisis. The first signs of a new global recession emerged back in 2018, but governments used all sorts of measures to delay its start. The coronavirus made the recession inevitable.
There are also Kitchin cycles that last 2 to 4 years. You might be surprised to learn that Kitchin himself linked these cycles with the fluctuations in the world’s supply of gold.
Likewise, every 4 years, the Bitcoin network undergoes a halving: the block reward is reduced by half, which impacts the global supply of the first cryptocurrency. The father of crypto – Satoshi Nakamoto – even drew a parallel between gold and Bitcoin.
Let’s go back to the cycles. In the 4 years that divide two halving events, Bitcoin passes through the whole cycle, from growth to peak to recession to trough.
Does this chart look familiar? It’s the 4-year period from 2017 to 2020: expansion, peak, contraction, bottom.
What about this one? It’s the dynamics between 2013 and 2016.
And this is what happened from 2009 till 2012:
The chart is always the same. BTC grows, reaches a peak, falls down deep, recovers roughly to the mid-point of the previous peak by the time of the next halving, and grows to the next peak. This has been happening for 12 years.
– Peak 1: $32;
– Halving-2012 – $12.5 or 39% of the preceding peak value;
– Peak 2: $1,178;
– Halving-2016: $665 or 56.5% of the last peak value;
– Peak 3: $19,764;
– Halving-2020: $8,977 or 45.5% of the last peak value.
Before every past halving event, Bitcoin reached more or less 50% of its preceding peak price. Thus, we can expect a new period of growth and a new peak after the halving in 2020. The question is, how high will that peak be?
A short but interesting digression is in order here. Bitcoin’s first real price rally happened in November 2010 and took it to $0.50. Before that, you could buy 3,000 BTC for $1, so the rally was explosive: the first real all-time high. Let’s call it Peak 0.
1) The ratio of Peak 1 to Peak 0 equals 32 / 0,5 = 64
2) The ratio of Peak 2 to Peak 1 equals 1 178 / 32 = 36,81
3) The ratio of Peak 3 to Peak 2 equals 19 764 / 1 178 = 16,77
Note that each new ratio – that is, the relative difference between the two adjacent peaks – is roughly one half of the previous one.
- 64 / 36,81 = 1,73;
- 36,81 / 16,77 = 2,19.
Which conclusion can we draw from this? If the mathematical trend persists and Bitcoin keeps growing according to the same pattern, the next peak (Peak 4) should be 8 times higher than Peak 3. That is, 19 764 * 8 = $158 112.
When could this peak arrive? In the past, it happened 12 to 18 months after the halving. This would mean somewhere between June and December 2021. The model shows a logarithmic trendline. Will it work this time? We can’t know for sure, but, as Charles Dow said, history always repeats itself.
The second objective – though somewhat sentimental – the reason, why Bitcoin could grow to $100k, is the market psychology. Every crypto enthusiast is longing for a new bull rally.
Everyone says that the stock market is one huge bubble and that companies’ valuations are far too high, and yet the stock market keeps growing by 80-90% a year. Why can’t Bitcoin do the same? Most people believe that its potential is immense, and that creates room for further growth.
Let’s not forget that financial market dynamics depend on the traders’ and investors’ behavior. The whole system of technical analysis relies on the psychology of the market players, and it’s been working well for more than a century.
Several recent factors will have a positive long-term impact on the crypto industry: the launch of BTC futures on CME, the release of Bakkt, the development of the crypto derivatives market, and the arrival of institutional investors.
As more and more countries officially recognize crypto and as respectable insurance, pension, and investment funds start investing in Bitcoin, the largest cryptocurrency will surely benefit.
The ongoing generational change is also likely to have an effect: more technically advanced young people who are entering the investment market will treat Bitcoin seriously and not as a curiosity
Therefore, Bitcoin has all the chances to become not just an alternative portfolio asset but a real reserve currency, just like gold, euro, or the US dollar. Even the leading bankers discuss this possibility.
A last bit of data: according to the analytical service Glassnode, over 60% of the circulating Bitcoins haven’t moved for more than a year, just like in 2017. This shows that investors are storing their BTC in preparation for a new rally. What’s the link? As an asset is taken out of circulation, a deficit of supply emerges. Add to that the halved emission rate and the market supply of Bitcoin are suddenly much reduced.
Even though many well-known economists, investors, and analysts keep saying that Bitcoin is a bubble that can’t possibly be worth $100k, history proves them wrong. The same experts once said that the Bitcoin price couldn’t reach $100, $1,000, or $10,000.
They said that Bitcoin would never be recognized or properly regulated and that it was a Ponzi scheme. We all know how that turned out. So get yourself some popcorn – and Bitcoin – and wait for the bright future to come.