Cryptocurrencies boomed in 2021, but Bitcoin’s (BTC-USD) late year retrenchment left many investors unsure about the same returns in the new year.
Buoyed by demand for non-fungible tokens (NFTs) and decentralized finance (DeFi), Ethereum (ETH-USD) and smaller cryptocurrencies ended up stealing the spotlight from Bitcoin. Its market capitalization, currently under 40%, is the second lowest it has ever been according to Trading View data.
Trading around $47,300, Bitcoin is down 8% since last week and 31% lower than the all-time high it hit in November near $69,000. While hopes for Bitcoin $100,000 have been dashed in the short-term, bulls remain unflappable — and some aren’t afraid to double down on their predictions.
“Short-term, there may be some volatility,” CryptosRus George Tung told Yahoo Finance on Monday. “Long-term, inflation is going to be a continuing issue, and bitcoin is seen as the best hedge against inflation at this point.”
Samson Mow, chief strategy officer for Bitcoin software company Blockstream, was among those who predicted a move into six-figure territory. He insists the lofty water mark is still a real possibility.
“We’ll see $100k within the first half of the year,” Mow told Yahoo Finance.
He admitted that in the short-term Bitcoin will continue to perform like a risk-sensitive asset, fluctuating based on central banks and government policy, as well as broader shifts within the stock market. But “on a long enough time horizon, [Bitcoin] does its own thing,” Mow added.
Yields and volcanos
His comments follow a similar prediction from El Salvador President turned Bitcoin evangelist, Nayib Bukele, who made a similar call over the weekend. Bukele predicted that two more countries will adopt Bitcoin as legal tender this year.
2022 predictions on #Bitcoin:
•Will reach $100k
•2 more countries will adopt it as legal tender
•Will become a major electoral issue in US elections this year
•Bitcoin City will commence construction
•Volcano bonds will be oversubscribed
•Huge surprise at @TheBitcoinConf— Nayib Bukele ?? (@nayibbukele) January 2, 2022
Recently, Blockstream and El Salvador made headlines, after Bukele and Mow unveiled a partnership to offer so-called “volcano bonds.”
Half of this billion dollar sovereign debt offering will go towards financing “Bitcoin City,” an economic development project located in the Southern part of the country said to be a tax haven, that will also harvest nearby geothermal energy from a volcano to mine Bitcoin.
Among other amenities, Mow said a “zero tax on everything” development zone will transform El Salvador into the “Singapore of Latin America.”
While the bond isn’t available yet, Mow said Blockstream is working with a number of brokers.
The other half of this U.S. dollar denominated 10-year bond offering will be converted into Bitcoin. The 10-year bond which reaches maturity in 2032, carries a coupon of 6.5%. While Mow admitted this novel sovereign security is far more popular with Bitcoin investors than the general investing public, he suggested institutions “starving for yield” will snap up the bonds.
El Salvador’s bond offering follows the International Monetary Fund’s (IMF) warning as far back as June that making Bitcoin legal tender exposed the country to significant volatility risks. Yet like Bukele, Mow hinted at the possibility that in 2022 other countries — especially those involved in Bitcoin mining — will follow El Salvador’s move to make it legal tender.
“For other countries, [Bitcoin] mining at the national utility level is the first step,” Mow added.
Bitcoin mining operations attempt to generate revenue by acquiring Bitcoin at below market rates. Individual hobbyists and companies do this by contributing computing power to the token’s decentralized payment network. Known as proof of work (POW), the system has never been hacked, but its high energy has drawn the ire of climate activists.
While the Chinese government banned cryptocurrency mining in June of 2021, the industry has resurfaced in other countries including Canada, Iran, Germany, Malaysia, Russia and the United States, according to research compiled by the Cambridge Bitcoin Electricity Consumption Index (CBECI).
‘Huge consequences’
How Bitcoin is used and who mines it can be tracked, but the process isn’t perfect. The asset’s payment rails allow observers to trace the flow of funds from different wallet addresses. And determining who owns any particular wallet address — whether it’s a sovereign nation, corporation or individual — remains more art than science.
A recent paper published by the National Bureau of Economic Research (NBER) shed some light on exactly who owns Bitcoin tokens. It found individual holdings are “highly concentrated,” with the top 1000 investors controlling 3 million, or about 20%, of all Bitcoin in circulation.
Antoinette Schoar, an MIT economist and one of the paper’s authors, told Yahoo Finance said that this level of concentration undermines one of the key promises of cryptocurrencies: to democratize finance.
“We know that just through selling and buying, one of these individuals can create massive amounts of volatility in Bitcoin, which as we’ve seen has huge consequences,” said Schoar.
However, some Bitcoin investors dispute those findings — even as an analysis from blockchain analytics firm Glassnode found that the rising number of “whales” are indicative of institutional interest in crypto.
David Hollerith covers cryptocurrency for Yahoo Finance. Follow him @dshollers.
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