It has been yet another rollercoaster year for Bitcoin, but what did you expect? Every year is a rollercoaster for the world's most popular cryptocurrency.
It started the year trading at just under $30,000, more than doubled by April, only to dip in the summer then rally to hit an all-time high of around $68,000 in early November, depending on which exchange you used.
So far, so Bitcoin. At time of writing, it was trading at just over $57,000; where it will stand when you read this article is anybody’s guess.
As is next year's performance, but as 2022 looms Bitcoin does have a clear shot at blasting through the $100,000 barrier, which would light fresh fires under both fanboys and haters.
Even those who continue to complain that Bitcoin is dirty and has no practical uses will have to admit it at least has staying power.
It’s not hard to find cryptocurrency traders who reckon Bitcoin could break $100,000 next year, David Morrison, senior market analyst at Tradenation.com, says. “It’s just as easy to find those predicting it could fall below $30,000.”
His view is that it is likely to do both. “The trick is working out which comes first – $100,000 or $30,000,” he says.
Bitcoin has one major factor in its favour, Mr Morrison says. “It is a finite resource because only 21 million can ever be mined. This gives it a scarcity value that major fiat currencies such as the dollar, euro, Japanese yen, and British pound simply do not have.”
Fiat currencies can be printed without limit – as central bankers seem determined to illustrate right now with their pandemic stimulus measures.
The question is whether Bitcoin can replace them as a form of exchange, Mr Morrison says. Here the jury is out. “Money needs to be divisible, durable, transportable, hard to counterfeit and a store of value. Arguably, Bitcoin passes these tests. But it must also act as a medium of exchange and for this, it needs trust and stability.”
Some people trust it more than the US dollar. “Several high-profile US sports stars accept Bitcoin in payment, as well as the newly elected mayor of New York City Eric Adams, who asked for his first three pay cheques in Bitcoin.”
Yet it remains too volatile to be a useful medium of exchange for most people, Mr Morrison says. “That could change. For now, it’s a great thing to trade.”
Technical traders expect that Bitcoin will fall back to around $50,000 in the weeks ahead, which will trigger a surge to $90,000. “A sizeable pullback could follow, maybe even testing support around $30,000, and that would be the time to buy,” Mr Morrison says.
All of which is “pure conjecture”, he says. With Bitcoin, nothing can be predicted.
The momentum behind the concept of decentralised finance (DeFi) is growing exponentially and that will push up prices, Katharine Wooller, managing director of digital cryptocurrency FinTech platform Dacxi, says. “It is not a question of ‘if’ crypto will become a major force in international cross-border global finance, but ‘when’.”
The recent launch of the ProShares Bitcoin Strategy ETF on the New York Stock Exchange, which invests in futures contracts, is only the start. More ETFs will follow – and suck more money in, particularly from institutional investors.
Disillusion with traditional asset classes is driving demand for cryptos and other digital assets such as non-fungible tokens (NFTs), Ms Wooller says. “Will Bitcoin hit $100,000? Almost certainly. Some forecasters suggest a long-term value of $250,000. I would be more surprised if it didn’t get there than if it did.”
The big question is whether now is a good time to buy.
Nobody wants to pile into Bitcoin at $60,000, only to see its value of the estate halve in a matter of days, but that's the chance you take.
If you assume that it will hit $100,000, then it is never too late to invest, Jeremy Cheah, associate professor in decentralised finance at Nottingham Business School, says.
However, he says invest is the wrong word. “Speculate is better.”
Never put your faith in people predicting future price movements, Mr Cheah adds. “Speculators bear the risk if Bitcoin collapses, not the forecasters.”
It's not too late to invest in Bitcoin but brace yourself for further volatility, Philippe Ghanem, founder and executive chairman of SquaredFinancial, says. “Buy only what you can afford to lose, do not borrow money to invest and do not buy the cheapest cryptocurrency. I would favour Ethereum, with Bitcoin a close second.”
Mr Ghanam expects further growth as derivatives boost market liquidity. “New tradable products, improvements in hardware and lower costs to trade will all have a positive impact on the growth of the digital asset ecosystem,” he says.
Cryptocurrency growth comes in waves and January could bring the next Bitcoin bull run that brings $100,000 into view, says a bullish Josh Sandhu, co-founder of QuantusGallery.com. “As buying becomes easier and integrated into our daily lives, Bitcoin has a lot of room to grow.”
Ethereum is moving to a proof-of-stake model and Mr Sandhu says the sooner the better as transaction fees are a headache for new investors. “We are hoping for faster transactions, fewer failures and lower fees, which should bring a flood of new investors.”
He rejects the idea that it’s too late to invest in Bitcoin or any of the top coins. “We're still in the wild west and gold rush moment. We have yet to see mainstream adoption and the moment that happens, it will be too late. For now, there are still huge returns to be made,” Mr Sandhu says.
If you find yourself drawn to trading Bitcoin, ask yourself why that is and what the impact might be. As well as your wealth, you are also putting your mental health on the line.
Your psychological make-up could also affect your returns so recognise their own biases and traits, Lee Goggin, co-founder of Findawealthmanager, says.
“If a sudden market fall would make you want to pull out of the market, you had better combat that urge as it might cost your dearly.”
Few have the stomach for wild cryptocurrency volatility. “The highs may be exhilarating and potentially highly profitable, but the lows don't bear thinking about, especially if you risk a large proportion of your wealth.”
Mr Goggin says most crypto investors he deals with are young and have often amassed substantial gains. “The aspect that stands out the most is their nonchalant attitude. In our experience, it is rare for a young crypto investor to take profits, let alone set an exit level for their remaining holdings. Instead, we regularly hear they believe the price will continue to rise and rise.”
He urges investors to challenge this philosophy. “Overconfidence is one such behavioural bias that could lead to disappointment in the longer run.”
Three under-the-radar alt-coins with more potential than Shiba Inu
There are scores of cryptos to choose from, with Shiba Inu, Dogecoin, XRP, Cardano, Litecoin and others flying in and out of favour. Josh Sandhu at Quantus Gallery picks his favourite under-the-radar cryptocurrencies for 2022.
- Bone ShibaSwap: “From the developers of Shiba Inu, this is my first choice and a highly speculative play,” he says. Shiba Inu’s team successfully launched their swap earlier this year and Bone will be its governance token. “Currently, it is sitting on a very modest market cap and has the potential to grow thirty-fold value if all goes to plan. To concentrate minds, developers are being paid in the token itself. As with all tokens, anything can happen.”
- CRO: More risk-averse traders should consider CRO, the native token for cryptocurrency platform Crypto.com, which recently bought naming rights to the Staples Centre in Los Angeles for 20 years. Mr Sandhu said the move caused a huge spike and it has another advantage. “Crypto.com will be completely green come the tail end of the next year and can truly lead the charge without fear of a regulatory blockchain climate crackdown.”
- AAVE: His third choice is AAVE, a decentralised lending system that allows users to lend, borrow and earn interest on cryptocurrency assets, without owning them outright. “Supply is limited and with a market cap of $3.6 million, there’s plenty of room for growth. “It is a relatively safe bet for those dipping their toes into crypto,” Mr Sandhu says.
As ever with crypto investing, “safe” still means risky.
