Will bitcoin’s price surge over Christmas?

Bitcoin’s price has fallen considerably since the middle of November, but what should investors expect over Christmas?

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The price of bitcoin looks unpredictably volatile at first, but delve a little deeper, and a pattern starts to emerge.

Since the world’s biggest cryptocurrency launched in 2009, four-year cycles have been crucial in determining bitcoin’s value. Each period brings a parabolic bull run, followed by a dramatic bear market retracement where BTC’s price plunges dramatically. The cycle then repeats.

This consistent record of peaks and troughs has been linked to Bitcoin’s halving events, which also take place every four years. As the name suggests, halvings slash the amount of new BTC that is left for miners to find by 50%. The ensuing supply squeeze has the potential to push up the bitcoin price during times of high demand.

A look back at BTC’s performance shows that about 12 to 18 months after halving events have taken place, considerable price rises have followed. This was certainly true after the last halving in May 2020. Bitcoin’s price stood at $9,000 back then, and by April 2021, it had shot up to unprecedented highs of $64,000.

This means that 2013, 2017 and 2021 have all delivered healthy returns for bitcoin, keeping that four-year cycle intact. But on crypto Twitter and elsewhere, there is now a belief that bull markets are lengthening, and that bitcoin’s value will once again reach all-time highs.

So… what will Bitcoin’s price at Christmas 2021 look like? Here are some short-term bitcoin price predictions to tide you over the festive period.

Short-term Bitcoin price analysis: Not looking good 

At this point, it is worth wheeling out the bitcoin price forecasts made by PlanB, a popular (though pseudonymous) analyst on Twitter.

He created the bitcoin stock-to-flow model, which has long predicted that BTC will be worth six figures in the early 2020s. It is calculated by looking at the “stock” of bitcoin (18.9 million in circulation) versus the “flow” of new bitcoin entering the ecosystem through mining (about 900 a day). PlanB argues that the ensuing scarcity should result in an average price of $288,000 in the current halving cycle, which ends in early 2024.

But it is PlanB’s floor model that is really causing alarm bells right now. In simple terms, the analyst has described this as his “worst-case scenario” for bitcoin’s price, the minimum amount it should be worth at the end of each month. 

The targets set for August, September and October were reached with relative precision, helping to lend credibility to PlanB’s analysis. But $98,000 proved far too ambitious, and PlanB later admitted that November’s close of below $60,000 was a “big miss”. He has given his floor model one more month to turn things around, but continued weakness in December means that $98,000 by the end of the year, let alone $135,000, is fanciful to say the least.

Beyond PlanB, a number of analysts on crypto Twitter have been making a fatal error: assuming that history would repeat itself, and 2021 would be a carbon copy of 2017. Until mid-November, there had been endless charts claiming that BTC was on an identical path to four years ago, when bitcoin’s price doubled in three weeks and briefly broke $20,000 for the first time. There was palpable excitement that a similarly astronomical rise was imminent – but things have changed.

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Now an asset with a total capitalisation of $900bn, the bitcoin market has changed immensely over the past four years. The arrival of derivatives, including futures, means that bitcoin’s price now behaves a lot differently than it did in 2017. BTC trading also used to be retail-driven, but the arrival of institutions such as Tesla and MicroStrategy means today’s market participants are incomparable to those of 2017.

At the same time, as closer ties are forged between the crypto markets and Wall Street, an unwelcome correlation has started to emerge once again between the bitcoin price and the S&P 500. Concerns over the Chinese property development giant Evergrande, now in default after struggling to keep up with interest payments on a $300bn debt pile, caused BTC to fall as investors made a concerted push away from riskier assets. 

Bitcoin was also trading nervously ahead of the Federal Reserve’s final meeting of the year in mid-December, where it was confirmed that the central bank will be ending its stimulus programme earlier than planned. This sets the stage for three interest rate rises in 2022, something that could cause headwinds for equities and cryptocurrencies alike.

Bitcoins price at Christmas 2021: What to expect

All of this brings us back to the current outlook. Bitcoin has been struggling to punch through $50,000 for some time. Beyond that, it is going to be a long, hard road back to new all-time highs above $69,000. One particularly stubborn resistance level stands at $53,000, while $60,000 might be even a tougher nut to crack. 

Optimists now believe that the bull run will continue with abandon in the first quarter of 2022, opening the door to higher price levels.

Bloomberg Intelligence’s Mike McGlone has said that it’s a “question of time” before bitcoin’s price breaches $100,000, and while BTC may suffer “initial headwinds” once the Fed turns off the money taps, he thinks the digital asset is in much better shape than the equities markets. That is because bitcoin has endured two sizeable corrections in 2021, of about 50% and 40% respectively, while the bubble is yet to burst in the stock market.

Critics argue that this amounts to kicking the can down the road, and perhaps even denial that the bull run has come to an end. Just this week, the Bank of England argued that bitcoin could one day be “worthless”, doubling down on its prior warnings that investors should be prepared to lose all of their money.

These four-year cycles have produced extraordinary years for bitcoin’s price, but let’s not lose sight of the fact that those were followed by some terrible years, in 2014 and 2018 – and historically speaking, 2022 should be next in that pattern. After bitcoin raced to highs of $20,089 in December 2017, lows of $3,100 followed 12 months later, a decline of 84.5%.

Back in October, Pantera Capital’s Dan Morehead argued that such a sharp drawdown is unlikely to happen again now that the bitcoin market is maturing. However, he also wrote: “Unfortunately, there’s no free lunch. The flipside is, we probably won’t see any more of the 100x-in-a-year rallies either.”

Perhaps this is a sign that bitcoin investors should manage their expectations, and tread carefully as a new year approaches.

FAQs

In the past, this has depended on where bitcoin was in the halving cycle.

Historical data from Coinglass shows that, in terms of past Decembers, there’s been a 50/50 split between gains and losses since 2013.

That’s the million-dollar question right now. Bitcoin lost 7.11% of its value in November, and at the time of writing, it’s down 17% for December. Catalysts to look out for include the long-awaited approval of an exchange-traded fund that is physically backed by Bitcoin.

Bitcoin remains an extremely volatile, high-risk asset, so you should never invest more than you can afford to lose. The cryptocurrency is currently trading at a 31.2% discount to all-time highs, which may pose an attractive buying opportunity, but remains vulnerable to further double-digit falls.

As a result, it may be better suited to those with a medium or long-term investment horizon. Bitcoin’s price tends to look frightening on short-term charts.

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