Neither the author, Tim Fries, nor this website, The Tokenist, provide financial advice. Please consult our website policy prior to making financial decisions.
2020 has been a rough year for the global economy. While it has seen some recovery, it is not yet at pre-pandemic levels. Even with the vaccine and more geopolitical stability, there is still uncertainty in the markets.
But if there’s one asset that has done well in 2020, one that benefits from the uncertainty, it is Bitcoin. Despite the massive crash in March, the cryptocurrency has surged back to end the year on a bullish note. Recent derivatives market data suggests that it may get even stronger.
Futures and Options Trading Remains Bullish for Bitcoin
The derivatives market is a good place to gain some insight on the sentiment of Bitcoin. Cryptocurrency investors will have a lot to cheer about here, as Bitcoin options and futures positions from the leading options brokers indicate bullish predictions.
Both Bitcoin and Ethereum have been trading in the 10–20% band for an annualized rolling basis in the futures market. This is an indicator of bullish sentiment. Furthermore, Bitcoin has historically rallied during December, and you have a reasonably strong forecast.
The same confidence shows in the Bitcoin options market, where there has been no sign that traders expect a bearish trend. Again, this isn’t a certainty — especially in crypto — but other incidental factors like Bitcoin’s performance in December indicate growth.
Several figures have stepped forward in recent weeks and offered their take on the market. This includes those who have been long time investors and those who have recently joined. From Microstrategy to Square, more companies have been putting money into Bitcoin as opposed to holding cash.
Jim Cramer, from CNBC, now believes that Bitcoin is a decent investment, saying that younger generations are comfortable with it. Dan Tapiero of Gold Bullion International has gone so far as to say that Bitcoin could go 20 or 30x. Most of these estimates are in the range of 5–10 years.
Of course, there have been detractors as well, including prominent hedge fund manager Ray Dalio. He has questioned the value of Bitcoin on several occasions. Dalio recently asked the Twitter crypto community to help him understand — which at least showed a willingness to listen.
This is also made apparent in the increase in institutional investment this quarter. Digital asset management firm, Grayscale Investments, reported that more institutional funds had entered compared to last quarter. JP Morgan Chase has also noted that more institutional players are joining the market.
The price increase could be a combination of retail and institutional investment — unlike 2017, which was largely a retail movement. Professionals investors are in the market for a longer-term, which could bode well for the asset in the upcoming years.
All this goes to show that the sentiment surrounding Bitcoin is at very high levels. Of course, the cryptocurrency is a highly volatile asset, so that it may be a bumpy road to the ambitious predictions. But it’s clear that Bitcoin is seen as a legitimate asset class.
2021 will be a very interesting year for its growth, which could be helped by fiscal policies. The arrival of institutional investment suggests that this bull run might be different.
Bitcoin seems to have passed its hype phase and is now slowly accumulating towards new resistance levels. It isn’t a stretch to say that it has blown past its previous support levels of $12,000 from months ago. Bitcoin is an asset that moves quickly, and 2020 has underscored that.
What matters is how the cryptocurrency will play out in the next month or two. That will give investors a sign of what is to come over the course of 2021. In any case, next year will be a momentous year for Bitcoin, with the asset demanding attention.
Tim Fries is the cofounder of The Tokenist. He has a B. Sc. in Mechanical Engineering from the University of Michigan, and an MBA from the University of Chicago Booth School of Business. Tim served as a Senior Associate on the investment team at RW Baird's US Private Equity division, and is also the co-founder of Protective Technologies Capital, an investment firms specializing in sensing, protection and control solutions.