A spectacular surge
Last year Bitcoin was up 307% and Ethereum was up 440%.
This is a historic rise that can be explained as a consequence of the impact of the pandemic, the crisis that the restrictions imposed by the COVID19 brought about and the entry of institutional investors.
No wonder Bitcoin was born in 2009 as a response to the financial crisis (remember that on September 15 of the previous year Lehman Brothers went bankrupt). A protocol created by the mysterious Satoshi Nakamoto, as surprising as it was ahead of its time, exposed the weaknesses of fiat money and the role of financial intermediaries, whose credibility was already very much in question after big financial scandals were uncovered. Following the footseps of Bitcoin, new crypto-currencies burst onto scene, some of them — it must be said — technically superior… But as the saying goes, the early bird catches the worm, and so did BTC.
Later, thanks to the young genius Vitálik Buterin and his team, Ethereum was born, which broadened the horizons of the new blockchain technology much further with the creation of smart contracts. Its applications were almost unlimited: from deeds and logistics to data protection or polls in a safe, transparent and efficient way.
But we are not going to tackle the technical aspects here, we are simply going to make our prediction for 2021.
Crypto forecast for 2021
One thing is for sure: if the regulators had wanted to get rid of Bitcoin or Ethereum, they would have simply done it already.
On the other hand, the underlying technology, i.e. the Blockchain technology, is going to be implemented in a host of applications, including, needless to say, cryptocurrencies and money transfers.
In 2021, unfortunately, the effects of the restrictions caused by the Covid19 will be harsh, specially for certain self-employed workers and some sectors such as tourism, hotels, catering, events, culture… We addressed such issue earlier on Financial Translator (see What impact will the coronavirus have on my job?)
In a low returns scenario, institutional investors have begun to buy the two most reliable cryptocurrencies so far: Bitcoin and Ethereum. They have also bought Litecoin and a few of the over 2677 cryptomonies that currently exist.
This has resulted in a dramatic rise in their prices: as of January 3, 2021, 1 Bitcoin is quoted at £28,101 (i.e. $34,101 or £24,940) and 1 Ethereum is quoted at $775,83 (i.e. $604 or £536).
No one has a crystal ball. Financial Translator does not know the future, but if we had to make an estimate, we would dare say that both Ethereum and Bitcoin will continue to rise in 2021, both because of the socio-economic situation and the strengthening of these two cryptocurrencies. As usual, we will see constant fluctuations, which are part and parcel of any volatile market. We also believe that Ethereum will continue to grow even more than Bitcoin as stakeholders become increasingly aware of all the applications ETH has to offer and the potential revolution smart contracts may bring about. However, Bitcoin has an ace up its sleeve: it is limited, just like gold. There is a limit to the bitcoins that can be mined, so chances are that, unless regulators ban cryptos, its price will skyrocket in the coming years. By the end of 2021, the value of both cryptocurrencies may have doubled or even tripled.
We would also strongly recommend not investing more than 5% of your income or assets in cryptos. Let’s call a spade a spade: It is a risky investment. But… Why not more than 5%? Because if everything is lost, nobody goes bankrupt, not even gets in a pickle, because of loosing 5% of their capital (10% might well cause you some troubles); but on the other hand, if it continues to rise, the investor can make a huge profit.
It would be fantastic to witness the appearance of a social crypto, as we discussed on Wrögl: the miracle of a local currency. But it is a different kettle of fish, or a currency of a different colour 🙂
Greetings and happy new year! Take care.