Will bitcoin rise? 10 Reasons for a Bitcoin Rally

Past Bitcoin Rallies

In 2017, bitcoin experienced a brilliant rally. The price gains of the leading cryptocurrency added up to an incredible 2,000 percent, and in mid-December 2017 the value of a Bitcoin was around 20,000 US dollars. This was probably the first time many people heard about Bitcoins and other cryptocurrencies such as Ethereum, Litecoin or Ripple. Because parallel to the sheer unbelievable increases in the value of the Bitcoin, the interest of the media in this topic increased enormously.

2020 was also a very good year for bitcoin, albeit a rather turbulent one at times. On the one hand, its price collapsed to mid four-digit US dollar amounts, but on the other hand, it reached a new high of around 30,000 US dollars again at the end of the year.

In the course of 2021, the bitcoin was highly volatile, but again reached record levels. In March 2021, for example, its price rose to more than 61,000 U.S. dollars, fell back to less than 32,000 U.S. dollars in mid-July, and then quickly recovered to more than 48,000 U.S. dollars.

Against this backdrop, many investors are asking themselves whether a rally like the one in 2017 or early 2021 can be expected again in the future. In this blog post, we explore the question and describe ten good reasons to expect such a scenario.

Reason 1: Legal framework around Bitcoin becomes clearer

In 2017, Bitcoin was a topic that most private individuals were just as unfamiliar with as banks and government institutions. As a result, national regulators in individual countries met the cryptocurrency with uncertainty and skepticism. In some countries - such as China and India - it was even banned.

In addition, there were uncertainties under tax law, as neither taxpayers nor tax offices knew how cryptocurrencies should be treated for tax purposes. In the meantime, however, there is clarity in terms of tax law, and the bans of certain countries have been lifted again. More and more legal certainty is also being created on the part of the regulatory authorities.

For example, the U.S. Securities and Exchange Commission (SEC) clarified in 2019 that cryptocurrencies such as Bitcoin and Ethereum are not "securities". Some significant uncertainty factors that previously stood in the way of a price rally, or at least had the potential to put the brakes on it, have thus been removed and are likely to have less and less influence on the development of the Bitcoin price in the future.

Reason 2: Bitcoin meets growing acceptance in the economy

In recent months, there have been repeated reports that not only private individuals, but also more and more companies are getting to grips with Bitcoin and accepting the cryptocurrency as a means of payment. Domino's Pizza, Microsoft and Paypal are among the best-known companies in whose stores it is now possible to pay with Bitcoin.

Current developments indicate that the means of payment once used almost exclusively between private individuals and on the darknet will be accepted by more and more companies in the future. In addition, there is the growing interest of investors in Bitcoins as well as in financial instruments such as CFD that are based on them.

Tesla founder Elon Musk made headlines with his thoughts of investing some of his capital in Bitcoin. Nasdaq-listed microStrategy has already invested $250 million in Bitcoin, and other companies with large cash holdings, such as Apple, could follow microStrategy's lead.

Reason 3: Growing number of hodlers and possibility of a bitcoin liquidity crisis.

In the relevant communities, there are more and more so-called hodlers who want to hold cryptocurrencies for very long periods of time. This tends to reduce the amount of bitcoins in circulation. The supply shortage, in turn, is a possible trigger for further price increases.

In addition, thanks to the high prices, the mining companies mining Bitcoins no longer have to sell all the Bitcoins they have mined to cover their costs incurred. Instead, they can hold them back, at least in part, in the expectation that the price will continue to rise and that a later sale will thus be even more profitable. Against this backdrop, there is even talk of the possibility of a bitcoin liquidity crisis if demand far outstrips supply.

Reason 4: Banks and institutional investors decide to enter the market

Just a few years ago, large, internationally active banking houses such as Morgan Stanley vehemently refused to get involved in cryptocurrencies. In the meantime, however, they have fundamentally changed their minds, and some institutions have already invested substantial sums of millions in cryptocurrencies such as Bitcoin or Ethereum. In addition, there are efforts by fund providers to launch Bitcoin ETFs. With the approval of corresponding investment products, significant funds could flow into the Bitcoin market and thus ensure further price increases.

In the meantime, financial instruments such as contracts for difference (CFD) have also expanded the spectrum of possibilities to participate in the performance of bitcoin or to hedge against price drops. In other market segments, leveraged products such as CFD have been firmly established for many years, and it can be assumed that CFD will also play an increasingly important role in the area of cryptocurrencies.

Due to the leverage effect of a CFD, it is not necessary to deposit the full value of a trade to open a position, but only a percentage of it. In addition, physical possession of Bitcoins is not required when trading CFD in order to profit from their price development. This makes CFD attractive for many private traders, but it should be noted that the opportunities with CFD are also matched by corresponding risks.

Reason 5: Bitcoins are increasingly used in everyday life

The fact that the cryptocurrency is being used more and more in everyday life is also contributing to the rising Bitcoin prices. For example, some restaurants and stores in various countries already accept payments with Bitcoin, and the necessary secure apps and technologies are now also available. In this context, Paypal's decision to enable its customers in the USA to make payments and send money in Bitcoin caused a particular stir.

Reason 6: An increasingly comprehensive infrastructure is emerging around Bitcoin

At the time of the Bitcoin price rally of 2017, the purchase of Bitcoins was still comparatively complicated and costly. Today, corresponding transactions are already possible within a few minutes, with customers being able to choose between payment by credit card and other online payment methods such as Paypal. At the same time, the range of trading venues for bitcoin transactions has grown, so that customers no longer have to rely on platforms located in remote countries.

So-called Bitcoin ATMs are still rare in Germany, but all the more widespread in some other countries. Similar to the conventional ATMs (Automatic Teller Machine), Bitcoin ATMs offer an uncomplicated possibility to get Bitcoins at corresponding stations.

Reason 7: Growing demand from investors and population

The ever-increasing interest of private individuals and investors in Bitcoin is reflected in a correspondingly growing demand. As with all scarce and not arbitrarily multipliable economic goods, this also leads to higher prices and corresponding price potential for cryptocurrencies.

This is especially true in view of the fact that the total amount of Bitcoins is limited to 21 million pieces, of which, however, by no means all have been mined yet. With the launch of Bitcoin ETFs or trading in Bitcoin CFD, interest and demand are likely to increase even further.

Reason 8: Bitcoin halving further reduces supply

Bitcoins are generated through a process known as mining. Put simply, this involves solving highly complex computer algorithms, for which the players in question are ultimately rewarded with Bitcoins. However, the amount of Bitcoins that can be generated in this way is not constant, because so-called Bitcoin halving is programmed in at selected points. In this process, the remuneration for mining, which is measured in Bitcoins, is reduced by exactly half.

In practice, this means that since the third halving in May 2020, Bitcoin miners receive only 6.25 Bitcoin for a generated block on the Bitcoin blockchain, compared to 50 Bitcoin per block in the beginning. Halving has significantly reduced the number of newly created Bitcoins over time and will continue to do so until all 21 million Bitcoins have been mined. The successive supply shortage causes additional price pressure in addition to the already mentioned increasing demand.

Reason 9: Inflation fears and reduced value of money

The Corona crisis of 2020/2021 placed a considerable burden on economies worldwide. In order to prevent a collapse of the economy, numerous central banks significantly expanded their balance sheet totals and pumped large amounts of fresh money into the markets. Leaving aside the question of the extent to which this was actually helpful for the economy, this approach leads to a massive dilution of fiat currencies such as the US dollar and the euro. The more U.S. dollars in circulation, the lower their value, and their purchasing power decreases.

This applies analogously to the euro and other currencies as well. The loss of value and purchasing power is referred to as inflation, and private and institutional investors worldwide are looking for ways to hedge against inflation-related asset losses. For many decades, they relied primarily on gold, but now cryptocurrencies such as Bitcoin are also coming into focus from an inflation protection perspective.

Reason 10: Google Trends still shows room for improvement for Bitcoin

While the previously mentioned nine reasons focused primarily on the factors that influence supply and demand on the Bitcoin market and thus also the Bitcoin price, the focus here is on the interest of the broad masses in the topic. If this interest takes on the character of a hype or euphoria, then this can lead to real price explosions, even if these later prove to be unsustainable.

Google Trends is a tool that measures the interest of the broad masses based on the search terms used. It shows that interest in gold is continuously at a higher level, while interest in bitcoin has flattened out again after temporary peaks. There can therefore be no talk of euphoria or hype, and a further increase in interest still seems entirely possible.

Overall, the conclusion that can be drawn from the above-mentioned reasons is that further increases in the Bitcoin price could be justified on fundamental grounds. Above all, the increasing integration of cryptocurrencies into everyday life and the expansion of the necessary infrastructure, but also financial instruments such as Bitcoin CFD should further stimulate demand. In parallel, more and more investors are considering Bitcoin as a hedge against inflation or are holding corresponding assets in their portfolios for the long term. This, in combination with the halving, causes a further tightening of the supply of freely available Bitcoins and thus causes their value to rise.