The Cryptocurrency Revolution - what is the outlook for 2021?
By Fred Razak, Chief Trading Strategist, CMTrading
With recent Bitcoin price performance on a high, Fred Razak, Chief Trading Strategist from CMTrading, discusses the cryptocurrency market outlook for 2021.
“The Bitcoin price has surged up to $60 000. And there are a few influencing factors that have contributed to this phenomenal rise in the cryptocurrency’s fortunes. The accumulation of three stimulus packages coming out of the United States have had an unintentionally negative effect on the long-term value of the US dollar.
In fact, ever since the Nixon administration took the US dollar off the Gold Standard, the currency has really been floating by its own virtue. As a result, the value of the U.S. dollar remains in a cycle of long-term devaluation. The only real value in the dollar is the US’s ability to service its debt.
“As a result of the devaluation, institutional financial investors are moving their investments away from the currency. Up to this point, the US has remained a very wealthy country and has stood by its ability to service its debt.
As the dollar devalues, however, the worthiness of the currency does as well. The interesting thing is, in terms of the movement in value from the dollar to alternate currencies like Bitcoin, where the dollar had immense power before and Bitcoin was worth next to nothing, the dollar is now declining and Bitcoin is legitimately becoming one of the most powerful currencies in the world.
“There has been a major shift. And this was brought about by a chain of events. Since its birth in 2009, Bitcoin has gone through several phases. It took some time to be recognised as credible alternate currency. The real turning point was when Bitcoin registered as a currency on the CME (Chicago Mercantile Exchange).
However, the road towards the completely appreciated value of Bitcoin is still wrought with uncertainties like statements made by United States Treasury Secretary Janet Yellen, who says Bitcoin will need to be regulated, causing investors sitting on the side-lines to become more hesitant to jump in. Once regulatory standards are imposed on the currency, it becomes less organic in form, and less volatile.
“We are in the Wild, Wild West of cryptocurrencies at the moment. Although Bitcoin came about in 2009, this is all just beginning. If one observes how few cryptocurrency transactions are taking place, the upside potential is humongous.
In truth, we haven’t seen the real magnitude of cryptocurrencies yet. Consumers have yet to take it on as a currency for daily transactions. But changing mindsets takes time. And we are seeing that major credit card companies, online payment solutions and, notably Tesla are adopting Bitcoin as a recognised payment method.
There are going to be a lot of competitors to Bitcoin incoming. The only thing I could really compare it to is the Dot Com bubble and bust of 1999-2000. There were many companies, like AOL (America Online), which was acquired for over $4 billion at the time, which seemed like a great value, but ended up a bust. That said, soon after, companies like Amazon.com and Google that had much less at the time, are among the biggest companies in the world today.
“With so many competitors to Bitcoin emerging, we may well see it drop as alternatives arise. The more companies that recognise cryptocurrencies, the more powerful it will become as a sector. Competition is good, and is the proof that the sector is being accepted. But it is anyone’s guess which specific cryptocurrency might ultimately emerge as the leader.
“Does the market truly appreciate what Bitcoin is worth? The exact evaluation is still up in the air. As more major corporations and mainstream influencers start adopting it transactionally, the word on the street is that it may still rise. Right now, as we look at it, the cat is out of the bag.
The market is grudgingly accepting it as a form of transactional currency. But there is still a lot to figure out. The question is, what threats could regulatory impositions pose to Bitcoin? And what about upcoming competitors? Could they overtake it?
“Down the line, we know that cryptocurrency is the way of the future. But we have no idea how the transactional transformation is going to happen yet. There are still so many questions that we need answers to – like which cryptocurrency will win the race? How will it be regulated? Bitcoin is still very volatile.
And volatility tends to make people sell. Ultimately, consumers would rather have a currency that is stable. There is still much trepidation, especially when the value of bitcoin weekly is changing into the $10,000s. But once global consciousness awakens to the value of cryptocurrencies in general, we may see an overnight shift.
“The most important thing to remember when you’re trading anything is to make sure that the institution you are trading with is regulated. And with cryptocurrencies especially, do your due diligence. Do the research and make sure that your money is in safe hands. We live in very interesting times and there are many opportunists out there, who are trying to cash in. Watch the markets; understand the trading environment and protect yourself by choosing a regulated broker.”