2021: The Year of Digital Assets
The Party is Just Getting Started
Happy New Year to all 10,000+ of you!
I’d like to dedicate this post to my older brother who I told to buy Bitcoin in 2012 at $9 USD and who didn’t listen.
Don’t be like my brother.
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Link here: “Digital Assets, Regulation, and The Path to Mainstream Adoption”
2021: The Year of Digital Assets
As we end a turbulent 2020, many look forward to a fresh start in 2021 with greater stability and a return to “normal.” Working from home, massive economic disruption, and changes to our social habits, we have experienced a great deal of change. However, if you’re expecting these changes to fade away, then 2021 will disappoint. Despite this disruption, digital assets like Bitcoin and Ethereum have matured and grown sharply in value this year. For investors in the space, it’s been a silver lining for challenging times. Expect the same, but more in 2021. Here are 5 predictions for digital assets in 2021:
1 - Massive growth as more mainstream adoption arises
The Bitcoin as digital gold narrative has entered the mainstream. November saw a slew of institutional leaders give credence to the permanence of Bitcoin as a new global hedge against fiat currencies and inflation including the CIO of BlackRock, Stanley Druckenmiller, SkyBridge Capital, and Guggenheim Partners.
Amidst this, we have seen the price of Gold dive relative to Bitcoin with historic outflows of Gold seemingly moving towards Bitcoin. JP Morgan reports that family offices and millennials are increasingly turning to Bitcoin over Gold as a hedge against inflation. AllianceBernstein, not traditionally a bleeding edge institution, also reports clients placing significant components of their portfolios into Bitcoin.
Value of Gold Compared to Bitcoin Over Past 5 Years
These institutional endorsements have two primary effects.
First, their commentary enters the news cycle and generate a sense of urgency for other investors to get into the action. This further raises the price of Bitcoin which leads to more coverage and more cyclical price growth. We are just at the beginning of this hype cycle with google search trends starting to move upwards, but nowhere close to the interest generated in the last bull run in 2017. The fact that Bitcoin price is at historic, all-time highs with much less buzz than the last cycle indicates we are likely nowhere near the peak. This is an institutional-led, bull run.
Google Searches for Bitcoin Over Past 5 Years
Second, these endorsements give cover for other funds, institutions, and wealth advisors to invest funds into bitcoin or bitcoin related businesses. More than anything, money managers want to avoid looking stupid. With mainstream leaders coming out in support of Bitcoin, other managers can point to them as indicators of credibility. In the event of a price crash, these managers can also at least say they weren’t the only ones who followed the trend.
This obviously bodes well for the future prospects of Bitcoin. As a rising tide lifts all ships, the growth in Bitcoin interest will also trickle down to other leading digital assets.
Don’t be like my brother and ignore me, like he did in 2012.
2 - Price surpasses $100,000 per BTC
If Stock to Flow model projections are proven right, Bitcoin should surpass $100,000 USD in July of 2021.
However, I suspect that with rapid institutional demand growing, corporate treasuries entering the fray, and retail buying opened via PayPal, Square, and Grayscale, the six-figure mark will be reached even sooner.
3 - Renewed Schlock
Amidst this bull market, we will see a renewal of scamsters trying to take advantage of the newest trend. With mainstream adoption, the scale of wealth and FOMO that will return will make 2017 look tame. It will be critical to work with seasoned veterans who know the real actors in the space and whom to work with. Promises of instant wealth and no risk will emerge and they must be quashed. You can also depend on the mainstream financial world pointing to these instances as red herring arguments against the entire digital assets ecosystem. Do not listen to this either.
4 - High Volatility
Amidst this bull run, we will see significant downswings as well. High growth comes with high volatility. It will be tempting to heed the 1001st call for Bitcoin’s death. The real effort is to do nothing. A rising tide lifts all ships. However, one can take part in the growing derivatives markets for Bitcoin and Ethereum to hedge risk, as we do at Two Prime. Options markets have grown over 1800% in volume in 2020. Expect similar growth in 2021 as institutions enter the fray and spreads shrink.
20% Downswings Are Regular Occurrences
5 - Ethereum Grows Even Further
As Ethereum launches the “beacon chain” of its 2.0 release, hundreds of millions of Ethereum has now been locked up for the next two years or more. This diminishment of supply, the buzz around the successful start of deploying a significantly more scalable Ethereum platform, and profit-taking from Bitcoin have led to a similar rise in Ethereum price.
While Bitcoin flirts with its all time-high, Ethereum remains far from it’s all time high and its relative market cap to Bitcoin remains much lower than the last bull run, indicating Ethereum likely has even more space to grow. As Ethereum lacks the market cap and simple narrative of Bitcoin, this asset looks to move more from retail buying activity and blockchain veterans rather than institutions. This allows for more speculation and also tends to move more on weekends when small buyers aren’t at work and have more time to play around.
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