As I write this, bitcoin is correcting from its all-time high and trading around $54,000. But I believe we will head significantly higher over the next year. There are quite some bullish catalysts driving bitcoin higher. Here are the main 3 of them:
1. Institutional Adoption
Institutional investors continue to move into bitcoin. New additions include George Soros, Morgan Stanley, Wells Fargo, U.S. Bank and countless others. Professional investors are finally realizing that they need bitcoin exposure. Their clients have been asking about it for years and were denied. Bitcoin has increased its value significantly and a lot of these clients are not happy. Meanwhile, Coinbase and others have been making a killing. The institutional FOMO scenario finally seems to be playing out. This is reason for an incredible next year alone.
2. Non-Transitory Inflation
The Federal Reserve is still buying $120 billion worth of Treasuries and mortgage bonds every month. And interest rates are back near zero. The Fed claims it will start reducing quantitative easing this year and finish by mid-2022. But can it really do it? The market would crash.
The Federal Reserve and U.S. government need inflation. Inflation is the easiest way to deal with a huge pile of unpayable debt.
The Fed might even try to reduce the money printing and even attempt to raise interest rates. But the markets will react and the Fed will reverse course within a short period. During this “normalization period”, assets like bitcoin and gold may sell off sharply, as all other assets will do. But it will be a temporary move, and we will move higher once people realize that we need to print and inflate for a long time before “normalization” can happen.
3. Negative Bond Yields
Negative bond yields are closely related to inflation. Bonds are an absolutely massive market, about the same size as the stock market. Bondholders are not having a great time right now. Inflation is high. Yields are net to nothing. The U.S. 10-year Treasury currently pays 1.5%. Official inflation is 5.4%. That’s a -3.9% real yield, and bondholders also have to pay taxes on the interest income, too.
A lot of bondholders will be looking to shift into alternative investments like bitcoin, gold and emerging market debt and stock.
This crypto bull market not over. Of course, the crypto markets are unpredictable and we will see massive corrections like now. This is typical for the crypto market. But over the next year, I’m pretty sure bitcoin’s price will continue to go significantly higher.
Sven Franssen