With the mainstream media, major companies, and Wall Street turning their eyes and ears on bitcoin, is the leading digital asset a good investment in 2021, and perhaps beyond?
Will bitcoin be a good investment in 2021
The second quarter has just begun and bitcoin is up more than 103% in year-to-date (YTD) performance. The bulk of these gains are a continuation of the digital assetâ€™s stellar run that gained more steam in December last year.
In the previous year, bitcoin went out with a bang. A big bang. It had a hot rally that smashed records and set new ones.
According to research firm Messari, bitcoin was the best-performing institutional asset of 2020 with a return on investment of more than 300% for the calendar year.Â
Gold, a traditional safe-haven asset mostly preferred by value investors in times of uncertainty such as the one brought about by the coronavirus pandemic, the lustrous yellow metal managed a return of 28% for its investors.
In other words, bitcoin was 10x more profitable than gold last year.
2020 was a watershed year, not just for bitcoin, but for the majority of financial instruments because of the pandemic and the fear (as well as excitement) that engulfed investors.
It is also important that we look at 2020 in retrospect because bitcoinâ€™s short-term future might be shaped by the events of the past year, though in practicality, this has been coming for a long time.
Bitcoin in 2020
- Bitcoin opens the year trading in the $7K region, drops below $4K in March – April due to pandemic panic, but closes the year more than 300% up against the greenback.
- Publicly-traded business intelligence firm Microstrategy invests nearly $500 million in bitcoin.
- Square Inc., Twitterâ€™s sister company, converts $50 million of its treasury into bitcoin.
- Financial payments giant PayPal ventures into crypto, allowing its U.S. clients to buy and hold digital currencies using their account balance.
- Bitcoin shatters previous price records, sets several new records days apart, sometimes within hours.
- Bitcoin halving, a pre-programmed event in which bitcoin block rewards (and the number of bitcoins minted every day) are slashed by half, happened in May. It is normally preceded by a bull run due to the perceived scarcity of the digital asset.
Will bitcoinâ€™s price go up in 2021?
Bitcoinâ€™s 2021 price action has been very interesting, at least because unlike in the 2017 bull run that was immediately preceded by a long and protracted brutal winter, the digital asset seems to be holding its gains, perhaps even extending them.
The leading digital asset has been on a tear over the last few months. There have been dips in-between, but they were not bad enough to rekt oneâ€™s portfolio. At least if you are an average trader.
Experts in the cryptocurrency and financial worlds have given their predictions on bitcoin.Â
In early January, strategists at JPMorgan, the largest bank in the U.S., predicted that bitcoin will reach a valuation of $146,000 in the long term. The researchers at the investment bank argued then that bitcoin needs to grow by a factor of 4.6x to match the private sector investment in the shiny yellow metal (gold).
Scott Minerd, the CIO of Guggenheim Partners, a global investment and advisory firm with $270 billion in assets under management (AUM), projected that each bitcoin would sell for $600,000.
Gemini co-founder, Tyler Winklevoss doubled down on his prediction that bitcoin would hit $400K within this decade.
Does all this mean that bitcoin’s price will go up in 2021? Well, these are just that: predictions.
No one knows what the future holds. But letâ€™s take a look at the institutions that possibly think that bitcoin is going to be a good investment in 2021.
Institutions that may consider bitcoin to be a good investment in 2021
The biggest purchase of bitcoins by a single institution was done by innovative electric carmaker Tesla. Tesla announced in early 2021 that it converted $1.5 billion of its balance sheet into bitcoin.
The company bought 48,000 bitcoins at $1.5 billion and their value has swelled to $2.5 billion.
Tesla has invested in bitcoin for less than 3 months and it has already turned a profit of nearly $1 billion. Some are even suggesting that Tesla will likely make more profit holding bitcoin than selling cars.
2020 was the first time that Tesla turned a full-calendar year profit since its founding in 2003.
What about MicroStrategy?
The publicly-listed business intelligence firm MicroStrategy has made bitcoin its main reserve asset. MicroStrategy, headed by Michael Saylor – the poster boy of corporate bitcoin allocation – has been hoarding bitcoin since August 2020.
The company has now purchased a total of 91,579 bitcoins at an average price of $24,311 per unit. The overall purchases cost the company $2.23 billion.
At the current bitcoin price, MicroStrategy’s bitcoins are now worth more than $5 billion.
What is even more interesting is the effect this has had on MicroStrategy’s share price.
MicroStrategy’s stock price is up 383% in the last six months. The company’s shares were trading around $150 when MicroStrategy first made its bitcoin purchase. Each share is currently exchanging hands for $720.
Growing institutional demand
The growing institutional demand now outweighs the supply. This makes bitcoin a scarce asset, and a good investment in 2021.
Is bitcoin a good investment in 2021
Bitcoin has shown that it has the potential to be a good investment in 2021, at least so far. However, it must be noted that no market can move in one direction forever. A bear market will come at some point.
And how hard bitcoin tanks during the bear market, if the bear market comes, will determine if the digital asset was a good investment in 2021.
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