The internet is full of Bitcoin (BTC) price forecasts. For example, some analysts believe that the flagship cryptocurrency will hit $1 million per coin in the next 10 years, while others believe that the price of BTC will eventually drop to zero.
Without dwelling on predictions that are five or more years ahead of us, let’s focus on what Bitcoin could do in, say, the next six months.
Once again, forecasts vary drastically. For example, Antoni Trenchev, the founder of Nexo Finance, forecasts the price of Bitcoin to hit $100,000 by mid-2022.
At the other end of the spectrum is University of Sussex professor Carol Alexander, who believes that the price of Bitcoin could fall as low as $10,000, thereby wiping out any gains it had made in 2021.
Bitcoin has been trending almost in the middle of these two extremely far-flung predictions, and at press time the cost to buy one BTC is close to $36,500 on Coinbase.
Bitcoin circulation will increase by an average of 6.25 BTC per 10 minutes until the next halving in early 2024. This means that miners will produce around 900 BTC per day. As a result, by the end of June 2022, a total of 162,900 BTC will be created in the year.
This would bring the total supply of Bitcoin in circulation to about 19.078 million BTC. If the price of BTC is $100,000 by then, its total market capitalization would be nearly $2 trillion, up 128.50% from the year’s opening valuation of nearly $875 billion.
Conversely, a drop to $10,000 would push Bitcoin’s market capitalization of total tokens in circulation to over $190 billion, down $685 billion, or about 78%, from the open this year. .
So the biggest question that comes to mind after seeing these mind-boggling predictions is whether it is possible for Bitcoin to move wildly towards any of the aforementioned targets. In my opinion, the answer is a BIG YES, mainly because the price of BTC has been notoriously volatile in the past.
One question to consider is whether or not investors are ready to pump nearly a trillion dollars into the Bitcoin market over the next six months. Trenchev thinks it may be due to the “cheap money” factor.
Sovereign currency devaluation remains a catalyst
Investors will have noticed that the valuation of the US dollar has been recovering lately.
A popular economic indicator, called the “US dollar index,” measures the greenback’s strength against a weighted basket of six foreign currencies: the euro (EUR), the Japanese yen (JPY), the British pound (GBP), the Canadian dollar (CAD), Swedish krona (SEK), and Swiss franc (CHF) all rose more than 7% to 96.22 last year.
It is also worth noting that the valuation of the dollar has risen only against fiat currencies., but against commodities, the dollar has been losing battle after battle.
For example, a recent report from the US Bureau of Labor Statistics indicates that consumers paid 7% more for everyday items in December 2021 than they did 12 months ago. In other words, inflation in the world’s largest economy has risen to levels never seen before 1982.
This shows that the dollar is nothing more than the best weak boxer in a ring competing with the six weakest boxers. Sure, the dollar has been winning rounds against all of them, but it has also been pulling away from the real competition.
Speaking of competition, let’s compare its value to a more scarce asset, gold.
The image above also shows that almost all fiat currencies have lost their shine against gold. The big elephant in the room is inflation., which benefits investors who have been hoarding the precious metal, or any hard money equivalent, against the current downtrend in currencies like the dollar.
Nowadays, there is around USD 40 trillion circulating in the markets, which includes all physical money and money deposited in checking and savings accounts. Meanwhile, investments, derivatives, and cryptocurrencies exceed $1.3 trillion.
Then, yes, there are enough greenbacks available on the market to boost the Bitcoin market by another trillion dollars, so that its cost per unit rises to $100,000 in the next six months.
Why hasn’t BTC hit $100,000 already?
Before even considering that argument, it is wiser to look at how Bitcoin’s market cap has performed over the years.
From the six-month time chart above, you can see that there has not been a single instance where Bitcoin’s market capitalization has increased by more than $1 trillion. Similarly, there has also not been a single case where Bitcoin’s market valuation has fallen by more than $190 billion in six months, as is required in the event that the price of BTC drops to $10,000.
Despite not going up or down drastically, the Bitcoin market, based on historical data, attracts more capital than it spits out, indicating why its unit price is up more than 14,250% YTD since January 2014.
Now, Going back to the “why hasn’t it happened” argument, there seems to be only one answer: uncertainty. And the uncertainty has many branches, ranging from regulatory issues to fears that the Bitcoin market may need a correction after rallying for nearly two years straight.
The Fed’s “Tantrum” Is Affecting Investor Confidence
The most commonly discussed reason for Bitcoin’s recent drop from $69,000 to $34,000 is the US Federal Reserve’s decision to end its $120 billion a month asset purchase program ahead of schedule. This is expected to be followed by at least three interest rate hikes from their current near-zero levels.
These loose monetary policies ended up pumping in around $6.5 trillion since the coronavirus-induced global market crash in March 2020. As a result of excess liquidity, the value of the dollar fell while riskier assets, including Bitcoin, turned ballistically bullish.
According to Crossborder Captial founder Micheal Howell, the excess funds in the market “had to go somewhere.”
As the Fed withdraws its quantitative easing policy to control inflation, it effectively removes excess dollars from the market. And as the markets hypothetically run out of cash, they increase it by selling their most profitable investments, be it stocks, real estate, Rolex watches or cryptocurrencies.
Therefore, hehe next six months could turn into a back-and-forth between those who need cash and those who don’t. The inflation caused by the devaluation of the dollar could prevent many investors from selling their assets, including Bitcoin. But with the Fed pulling the plug on its liquidity, crypto markets could face a hard time attracting new money.
This leaves Bitcoin with investors and companies that have excess cash in their treasuries and have been looking to deploy it into easily liquefiable assets.
Until now, Bitcoin has attracted big names like Tesla, Square, MicroStrategy and others. So naturally, it would take at least one popular Wall Street firm’s willingness to add Bitcoin to its treasury to enable BTC’s push toward $100,000.
Waiting for the retail boom
Meanwhile, as inflation creeps into people’s daily lives, their likelihood of embracing hard assets to protect their savings could also bode well for the Bitcoin market. For example, BTC’s surge to $69,000 last year coincided with an unprecedented surge in retail interest, according to a report by Grayscale Investment.
The American firm surveyed 1,000 investors and found that 59% were interested in investing in Bitcoin. Meanwhile, 55% said they purchased the assets between December 2020 and December 2021.
Whether it’s a boom or a bust, here’s what needs to happen
If Bitcoin were to hit $100,000 by the end of June 2022, this is what should happen.
- The M2 money supply remains at an all-time high.
- Planned interest rate hikes fail to keep inflation below the Fed’s 2% target.
- The number of non-zero Bitcoin wallets continues to rise to new all-time highs.
- More companies add BTC to their treasuries.
Meanwhile, Bitcoin could drop to $10,000 if:
- Long-term investors decide to dump Bitcoin to raise cash.
- Regulatory issues and a sharp correction in stock prices are weighing on crypto prices.
- Some unforeseen market manipulation or black swan event lowers the price of BTC like the flash crash of March 2020.
The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph.com. Every investment and trading move involves risk, you should do your own research when making a decision.