Bitcoin (CCC:BTC-USD) is the undeniable king of cryptocurrencies. Its volatile price action in 2021 led the fluctuations in the crypto market. After reaching a high price of about $65,000, Bitcoin is now trading around $32,700 and is down 50% from its highs.
Investors who bought Bitcoin for about $30,000 potentially doubled their money by selling at the high price. However, those who bought BTC at its top price have sustained a 50% loss.
But there is more to know about Bitcoin’s performance in 2021 besides rallies and sell-offs. There are five crucial things every potential BTC investor should be aware of in the latter half of the year.
Ignore Bitcoin Price Predictions
If analysts and investors had a crystal ball that could accurately predict the future price of Bitcoin, then investing would be too easy.
We all know that price predictions are difficult in reality. I would suggest ignoring any price forecasts, such as Bitcoin hitting $100,000 by the end of 2021 or $500,000 in a few years. There is no basis for either of these forecasts.
No one knows where Bitcoin prices will be in the short- or long-term. I could cite a myriad of analyst predictions, all of them with a different price target. Which one is the correct one? Frankly, I do not know. Bitcoin’s outlook can’t be measured by price predictions. But what can a technical analysis of the crypto tell us about its future?
Technical Analysis Shows Value but Isn’t Foolproof
An article published on Coindesk is optimistic that Bitcoin’s price consolidation may soon end.
“Bitcoin may soon move out of its seven-week trading range of $30,000 to $40,000, with an indicator tracking the cyclical nature of price volatility suggesting a big move is overdue,” the article stated.
As a trader, I know plenty of things about technical analysis. I see a lot of value in it even though it’s not 100% foolproof. But it’s important to note that for most financial assets, a prolonged consolidation — such as Bitcoin’s range mentioned above — often leads to a breakout.
Whether BTC’s price breakout will move towards the upside or downside is unknown. Either way, Bitcoin’s price should break out of its range sometime in 2021. Be prepared for volatility to increase no matter which direction it moves.
Further Regulation is Expected
China’s “war with Bitcoin” may indicate that further regulatory developments are coming for the cryptocurrency market. Last week, CNBC reported:
“In May, China banned financial institutions and payment companies from providing crypto-related services. In June, there were mass arrests in China of people suspected of using cryptocurrencies in nefarious ways. That same month, regulators dialed up the pressure on banks and payment businesses to stop providing cryptocurrency services, and Weibo, the Twitter of China, suspended crypto-related accounts.”
What might the future of Bitcoin look like in terms of regulation? First, expect the fight against tax evasion and money laundering activities to escalate. In the U.S., capital gains from cryptocurrency can be taxed. This regulation is a step in the right direction.
As the crypto market matures, investing in Bitcoin or any other token should not be associated with illegal activities. Major crypto exchanges have strict know-your-customer (KYC) procedures that verify the account owner. These minimize the risk of investing money in cryptocurrencies without knowing who the actual owner of the capital invested is.
I do not foresee a complete ban on cryptocurrencies. Countries such as Portugal, Switzerland and Germany are considered crypto-friendly. And since the European Central Bank headquarters are in Germany, I expect the cryptocurrency market in Europe to be regulated but not banned. After all, capital is always attracted to countries with a strong economy, and Germany has the largest economy in the eurozone. Bitcoin is no exception to this rule.
Institutional Demand Will Be a Key Price Driver
What is the main force that can drive Bitcoin’s price during a price breakout? Demand — specifically, institutional demand from publicly traded companies with large Bitcoin portfolios.
According to Bitcoin’s site, Goldman Sachs (NYSE:GS) “is seeing huge institutional demand for bitcoin with no signs of abating. A survey of Goldman’s institutional clients shows that 61% expect to increase their cryptocurrency holdings. Meanwhile, 76% say the price of bitcoin could reach $100,000 this year.”
I expect institutional demand for Bitcoin to remain high. This capital inflow could move its price to higher levels unless something big and unexpected occurs.
Bitcoin EFT: an Anticipated Top Factor to Monitor
A Bitcoin exchange traded fund (ETF) doesn’t exist yet. But that may change soon. According to Barron’s, “An ETF would allow investors to buy and sell the cryptocurrency more easily and cheaply, smoothly integrate it into their portfolios, and eliminate the hassles of securing and storing it.”
I fully agree with this argument. Considering all of the benefits, we could see more than just one large Bitcoin ETF in the future.
I don’t know how quickly regulators will approve any Bitcoin ETF. But I believe it will be a huge positive catalyst for regulators, investors and other parties involved in the cryptocurrency market.
On the date of publication, Stavros Georgiadis, CFA did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Stavros Georgiadis is a CFA charter holder, an Equity Research Analyst, and an Economist. He focuses on U.S. stocks and has his own stock market blog at thestockmarketontheinternet.com/. He has written in the past various articles for other publications and can be reached on Twitter and on LinkedIn.