What caused Bitcoin to go up and will it crash soon?

The Bitcoin exchange rate, which has updated historical highs several times, is now declining again. The quotations went up sharply under the influence of several factors, including the growing demand from institutional investors and the connection of cryptocurrencies to the services of PayPal. In 2021, experts believe, Bitcoin is waiting for an inevitable correction. They urge not to succumb to the hype and not to spend savings on risky investments in digital money.

Cryptocurrency roller coaster

December 2020 and January 2021 will be remembered for sharp exchange rate fluctuations in the cryptocurrency market. Bitcoins - the most popular virtual money - quickly rose throughout the end of last year.

If on December 1, Bitcoin cost 19 thousand dollars, by the end of December it managed to update the historical highs several times, while its value was approaching 29 thousand dollars.

The cryptocurrency reached its peak on January 8, breaking the mark of 40.5 thousand dollars. Since then, its price has fallen. On January 13, the digital coin was traded at $34,000 apiece. Thus, since the beginning of December, Bitcoin first rose more than 110% and then fell by almost 20%.

For some people, such a sharp rise from Bitcoin was an incentive to start crypto trading. If we take a look at general statistics during the pandemic a lot of people started to learn Forex trading as well as crypto trading. Bitcoin’s price was another determining factor for that.

Reasons for growth

There were several reasons for the growth of the Bitcoin exchange. First, it began to gradually rise even before May 2020, when there was another halving - a programmed reduction of the award of miners for the extraction of digital coins in half.

Secondly, the pandemic has played into the hands of Bitcoin. The coronavirus crisis forced market participants to look for high-yielding ways to place their assets. And in 2020, institutional investors began to show interest in Bitcoins. The influx of their money gave a powerful impetus to cryptocurrencies.

Another event that pushed the quotes up is the payment system PayPal added support for cryptocurrencies in October 2020. Bitcoin has benefited from this, but all the credit belongs to PayPal with its good business reputation.

One of the triggers for the growth of the value of Bitcoin in early 2021 could be the forecast of specialists from JPMorgan.They predict that the digital currency could rise to $146,000 if volatility decreases.

Causes of the fall

After such sustained growth, the asset is a natural sell-off. The market has formed a kind of correction, but it is unlikely to be similar to the one observed three years ago. Bitcoin is still trading near its historic high reached this month.

The correction of Bitcoin after such crazy growth was obvious. There is no infinite uniform growth in the markets. Investors recorded profits, someone was lucky. Such waves of a bullish rally always break down to a certain level, and the rate, like a wave, rolls back.

So now, everything will happen according to the same scenario: the crowd will buy Bitcoins for the last money (sometimes even credit) at the maximum. And only then the course at first sharply, and then smoothly will decrease, hammering the nail in the coffin of desperate daredevils.

What happens next?

It is extremely difficult or impossible to predict the value of Bitcoin using classical analysis tools. The main impact on the dynamics of the cryptocurrency will be the attention of the press and forecasts like the one that JPMorgan did.

In addition, its value will be affected by the speculative moods of market participants. Many people want to make quick money on the growing asset, not fully understanding why it is growing.

At the same time, we admit that the current momentum for the cryptocurrency is not exhausted, but in the long term, for the above reasons, we consider the tool from a position of healthy skepticism.

The rate of Bitcoin will fall to 28-30 thousand dollars, perhaps up to 25 thousand. All February Bitcoin will be adjusted downwards, then there will be waves of growth, but not so powerful. There will be several more correction periods throughout the year. Bitcoin may fall below 20,000, but a fall below 10,000 is unlikely. By the end of 2021, growth will resume, and we will see new attempts of Bitcoin to test the mark of 40,000, but there can be no speech about 100,000 dollars in 2021.

The probability of earning money on Bitcoin is lower than the probability of losing money. As for the forecast, much depends on the situation with the pandemic. When the world economy reaches pre-crisis levels, Bitcoin is likely to continue its decline. We should not rule out that in six months the rate will fluctuate in the region of 5-12 thousand dollars.

The situation in which Bitcoin updates highs and then collapses is not new, it has been repeated three times. Nothing prevents such a scenario from being implemented now. In the foreseeable future, regulators of large countries will not accept such money as an official alternative: they will not surrender control over the issue and will not legitimize shadow payments.

A complete replacement of traditional means of payment for Bitcoins is a utopia. What will happen to the economy if the value of the currency will rise by 50-100% per year? Will it be profitable to do any business? What Bitcoin can serve is a transitional link between current money and future cryptocurrencies of the Central Bank with a single emission center.