Increasing global uncertainty and a weak dollar is likely to push more investors into bitcoin as it is recognized as a value store. The fixed supply of the cryptocurrency will further drive price increases throughout the year, analysts from Bloomberg predict.
Bloomberg’s 2020 crypto outlook report, published Monday, predicts that the price of bitcoin could move to the top of its 2019 range and re-test the $14,000 high at a time when a weak dollar and stock market volatility is continuing and geopolitical tensions are rising.
“Bitcoin’s initial reaction to the [Jan. 3] U.S. airstrike that killed one of Iran’s most powerful generals was a good test of our premise that the first-born crypto is maturing toward a digital version of gold,” reads the report. Bitcoin jumped to a seven-week high Wednesday as gold rallied to $1,600 for the first time since 2013.
Bitcoin has long been regarded as “digital gold,” partly because it is a limited asset that can not easily be increased to meet changing demand, much like yellow metal. The expected halving event later this year will reduce block rewards from 12.5 BTC to 6.25 BTC, additional supply pressures should demand continue to increase.
The supply of Bitcoin is expected to grow by approximately 2.5 percent in 2020, which would be an all-time low. This is due in part to the block reward halving – from 12.5 BTC to 6.25 BTC. Supply could well drop below 2 percent in 2021, analysts say.
Increasing bitcoin investment may take many forms, analysts believe. The rapidly expanding market for derivatives–a sign of integration into mainstream markets–will enable institutional investors to become more exposed to the asset class. That might have knock-on effects on price and decreasing volatility, thereby strengthening the status of Bitcoin as a value store.
Bitcoin and gold are not all convinced to share such a strong bond. Mati Greenspan, founder of Quantum Economics, specializing in cryptocurrencies and foreign exchange, characterized such a relationship as “bad” and noted that until recently the connection between the two assets was negative.
Bitcoin was also prone to short, sharp volatility periods. The asset rose above $10,000 after China’s President Xi called on his country to speed up its blockchain technology adoption before retracing its former range weeks later. For some observers, this instability profoundly contradicts the argument, at least for the time being, that bitcoin is a stable store of value.
But while bitcoin may still be too volatile to the liking of many people, investors in the asset class appear to increasingly value digital assets that can maintain some sort of stable price. The Bloomberg report predicts that the market cap of tether will likely continue to expand this year, with many alternative cryptocurrencies struggling to keep investors as demand exceeds supply.
“Bitcoin, as the special and appreciating digital version of gold, should again outshine other crypto assets in 2020,” the study continues. “Bitcoin wins the adoption race, especially as a value store in an environment that favors independent quasi-currencies.”
