In October 2009, when Satoshi Nakamoto (pseudonym) created Bitcoin, the price of one Bitcoin was around $0.0008. As of April 28th this year, one Bitcoin traded for $39,205.10. This marks a 4.9billion percent increase over the past 13 years.
Bitcoin has shown great volatility over the past 6 years and recorded its all-time record on November 10th 2021, when it reached $68,789. However, since then it has been on a downward trend and as of May 5th, is trading at around $38,000. So, while its value has seen unrivaled growth since its inception, Bitcoin has fallen by half compared to its peak. With all these twists and turns, where will the Bitcoin price stand at the end of this year?
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There are both optimists and pessimists when it comes to the Bitcoin price outlook. As an asset, Bitcoin has been often criticized particularly for its high volatility and its lack of physical properties.
Notable critics include global investors Warren Buffett and Charlie Munger, who spoke out about Bitcoin last April. “Whether it goes up or down in the next year or five years or 10 years, I don’t know. But one thing I’m sure of is that it doesn’t multiply, it doesn’t produce anything”, they wrote. “If you […] owned all of the bitcoin in the world and you offered it to me for $25, I wouldn’t take it.”
Some also point out that an explosive rise like in the past will be difficult due to the effects of interest rate hikes, inflation and tightening cryptocurrency regulations. Carol Alexander, a professor of finance at the University of Sussex, who is considered a coin skeptic, predicted in an interview with CNBC last year that the price of Bitcoin would drop to $10,000 this year. “If I were an investor now I would think about coming out of bitcoin soon because its price will probably crash next year”, she said. Professor Alexander added that Bitcoin “has no fundamental value” and serves as more of a “toy” than an investment.
Swiss financial institution UBS published a report earlier this year entitled “Is another crypto winter here?”. The report found that “Bitcoin’s total market share within the broader crypto market declined from around 68% one year ago to around 40%, as of 10 January, according to CoinMarketCap data. We view direct exposure in crypto coins or tokens as attractive only for highly risk-tolerant and speculative investors”. Instead, the report stated that the bank would “focus on DLT [Distributed Ledger Technology] enablers and service providers, like select chipmakers, software companeis, and data center players”.
By contrast, there is also a view that the Bitcoin price has already reached the bottom and will increase this year.
For example, the major global investment bank Goldman Sachs partnered with crypto finance firm Galaxy Digital on May 3rd to start trading Bitcoin derivatives. The products they manage do not actually trade Bitcoin, but are, in fact, over the counter (OTC) derivatives that capture the difference between the strike price and the price at maturity.
Larry Fink, CEO of BlackRock with more than $9 trillion in assets under management announced the firm’s forray into the crypto market with an investment in stablecoin project Circle. The Wall Street Journal reported remarks by Fink in an April 13th conference call, according to which BlackRock is studying the crypto sector broadly, including assets, stablecoins, permissioned blockchains and “tokenization”, where it perceives a benefits to its customers. The industry has been keenly watching whether BlackRock would enter the virtual asset market. If BlackRock – one of the leaders of the traditional finance sector – jumps into virtual assets, this would not only greatly increase the size of the industry, but also have tremendous symbolic value for elevating virtual assets as one area of finance.
Ray Dalio, known as the “godfather of hedge funds”, is also believed to be preparing virtual asset fund investments through Bridgewater Associates, the world’s largest hedge fund, which he founded. Bridgewater has about $150 billion in assets under management. Dalio had already made waves last year, when he publicly revealed that he was personally holding Bitcoin.
Cathie Wood, CEO of ARKK Invest and one of the most famous Bitcoin optimists, said in a CNBC interview last December that “if institutional investors move into Bitcoin and allocate 5% of their portfolios, the price of the cryptocurrency would soar to about $560,000 by 2026.” This underlines her view that Bitcoin has potential to surge on the back of strong demand from institutional investors.
Bitcoin scarcity is a clear fact
One of Bitcon’s main advantages is its limited supply, and many view that this scarcity will soon fuel price increases.
The total Bitcoin supply is limited to 21 million. Recently, the 19th million Bitcoin was mined. Crypto mining firm SBI Crypto, a subsidiary of Japanese financial holding company SBI Holdings, recently announced that it had successfully mined the 19th million Bitcoin.
Now, there are only about 2 million Bitcoin left. A new Bitcoin is mined through a method in which a new coin is paid in exchange for sorting out the transaction details between users by using a computer to solve complex mathematical operations. As Bitcoin increases in value, the computer encryption needed to be solved for mining becomes more difficult. The industry predicts that the last Bitcoin will be mined around 2140, assuming that the current mining speed and method are maintained. So, what will happen to the price of Bitcoin if new supply disappears?