Bitcoin has been on a pretty wild ride in 2021. The cryptocurrency more than doubled in less than four months. However, the crypto gave up a large part of its gains. Amid this volatile backdrop, how high can Bitcoin go in 2021?
After surging for months, Bitcoin and altcoins witnessed a sell-off starting in April and May. The sell-off was precipitated by some tweets from one of Bitcoin’s largest proponents—Elon Musk. Chinese authorities’ potential crackdown on cryptocurrencies also caused a pullback.
Why Bitcoin is rising
After hitting a low of $35,000 on June 8, Bitcoin has been recovering. Bitcoin’s price climbed back above the $40,000 mark on June 14 after Musk pledged his support of the coin. On June 13, Musk commented that Tesla would resume Bitcoin payments after crypto mining becomes greener. He tweeted that the company will start transacting in Bitcoin “when there’s confirmation of reasonable (~50%) clean energy usage by miners with a positive future trend.” Bitcoin rejoiced by rising more than 12 percent after the tweet.
Bitcoin and Elon Musk's love-hate relationship
Musk is one of the most high-profile proponents of Bitcoin. His tweets and actions usually move the market price of Bitcoin a lot. On January 29, Musk added #bitcoin on his Twitter bio, which caused a spike of 20 percent in the cryptocurrency. In February 2021, Tesla invested $1.5 billion in Bitcoin. This vote of confidence in crypto caused Bitcoin to soar by 19 percent in a single day. Later, Tesla started to accept Bitcoins as payment and said that it wouldn't convert Bitcoins into dollars.
However, Musk did a U-turn in May and announced that Tesla would suspend Bitcoin payments for Tesla vehicles. He cited high fossil fuel usage in Bitcoin mining as the reason for this suspension. This caused Bitcoin's price to crash 13 percent in a day. Bitcoin kept falling to lower lows after Musk’s tweet.
While Musk’s most recent comment regarding Bitcoin was positive, any negative comment from him could send the crypto plummeting again.
How high can Bitcoin prices go in 2021?
Due to the crypto’s volatility, it's difficult to say how high Bitcoin prices can go in 2021. However, there are several catalysts that could support the upward trajectory for the coin. One of the most potent catalysts is rising inflation.
Inflation data shows 13-year record price increases for two consecutive months. As fiat currency’s value falls during inflationary periods, it's a good strategy to invest in real assets like commodities. Gold is also seen as a good inflationary hedge. Bitcoin and other cryptos have emerged as a new asset class, due to their decentralized nature, to hedge your portfolio from inflationary pressures.
For example, Paul Tudor Jones said that he intends to have 5 percent of his portfolio in each of the following asset categories—gold, Bitcoin, cash, and commodities. Jones has claimed that Bitcoin is a reliable way to protect against inflation despite its volatility in the stock market. If inflationary pressures build and there's enough investor interest, Bitcoin could retest $60,000 levels in 2021.
Bitcoin is also expected to gain momentum in the payment space as its partnerships expand. Mastercard, PayPal, and Visa have increased their cryptocurrency use.
However, higher Bitcoin prices aren't a consensus view. In fact, Institutional Investor Hall of Famer Richard Bernstein warned that Bitcoin is a bubble. J.P. Morgan also commented that a Bitcoin bear market could be on the way since the demand from big investors is missing.
Will Bitcoin hit $1 million?
It's still early to call $1 million for Bitcoin, which is currently trading at the $40,000 level. However, the crypto could eventually reach $1 million. After 2025, Bitcoin halving will occur and many experts think that it could be on its way to $1 million. CoinDesk Learn editor Ollie Leech said that Bitcoin's scarcity aspect alone should make it an incredibly exciting asset. While Bitcoin might not hit $1 million soon, it has the potential to do so eventually.