Bitcoin soared over 500% in 2020, but that is just scratching the surface.
It can be said in no uncertain terms that 2020 was a remarkable year for Bitcoin. Pure charting numbers aside (although undoubtedly correlated), 2020 was also the year that Bitcoin broke through and became an accepted instrument for institutional investment for both public and private companies.
Many ‘experts’ will warn of a similar crypto bubble to 2017, however the current run-up is driven not just by retail investors but also big-name investors, institutions, hedge funds and more.
Some of the traditional financial institutions that are buying minimum $100m tickets into BTC include; Paul Tudor Jones, Massachusetts Mutual Life Insurance, and Guggenheim Investments.
In addition, some of the crypto-focused treasuries and funds such as Grayscale and MicroStrategy have BTC positions in the billions.
What type of move has Bitcoin done to this point?
Before we look at where Bitcoin could be going, we should establish what Bitcoin did in 2020, against the context of its own history.
Prior to this recent run-up, BTC’s previous all-time high was $20k USD in 2017. This historic level created a psychological barrier for traders in the recent run-up, but after that level was breached $30k came quickly, and then for a moment the market then pierced 40k.
As I write this, Bitcoin currently sits at around $39k USD. While these swings upward have been violent, it is clear that Bitcoin is trading in a new range, and if it holds above $28k – which is almost 50% above the previous all-time high from 2017 then this is a very strong position for Bitcoin to build from in 2021.
Where does Bitcoin go from here?
This is of course an impossible question to answer with surety, however any thesis will be dependent on how some significant macro narratives play out.
In the coming months the Fed will need to decide if it wants to ramp up or dial back bond purchases from the current pace of $120 billion per month. The size of the Fed’s balance sheet in December represented 34% of American GDP.
Just this morning President elect Joe Biden announced a plan to inject another $1.9T of fresh cash into the economy to prop up families and businesses.
In the event that the Fed keeps buying back bonds and the market shows little desire to buy them back, the price of the bonds will go lower and this could place enormous stress on the US which will most likely lead to more money printing.
This can essentially become a bond death spiral, as the government is effectively printing more money to buy back assets at an inflated price to then sell them at market valuations, which inturn inflates the outstanding debt.
A similar thing happened in Japan where the equities market peaked in 1988 at 38,915 on the Nikkei Index. That is over 30 years ago and the market hasn’t traded close to this mark since.
Today the Nikkei Index today sits at 28,456.
In lay terms the Japanese bubble unfolded like this. The USD became weak against the JPY at the height of its economic pomp. Japan had a huge amount of savings and started to freely lend money to investors who in turn bought property. This inturn increased the paper value of the property market, which of course was then used as collateral for further loans that were used to speculate on the stock market or to buy more land.
History will show that little consideration was given by the government or banks to how this debt would be repaid in the event that land values started dropping.
Three decades on and the market is still remonstrating that lack of foresight.
Zombie apocalypse’s aside, let’s bring this conversation back to Bitcoin, 28k is the level that needs to hold in order to confirm that the market is comfortable in this new range. If this holds and becomes support, the next target range will be 60k. Specific mid-term resistance and support levels are difficult to plot as the price discovery has been so extreme, that we are in uncharted areas of the price map.
However, with the Fed showing no signs of slowing down on its money printing, it’s very hard to see that the 2020 BTC price action was anything but setting the table for the feasting that looks likely to occur in 2021.