Cryptocurrencies boomed in 2021, but the downsizing of Bitcoin (BTC-USD) late in the year left many investors unsure of the same returns in the new year.
Fueled by the 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 on record according to Trading View data.
Bitcoin is trading around $47,300, down 8% since last week and 31% below its all-time high in November near $69,000. While hopes for $100,000 in Bitcoin have dashed in the short term, bulls remain unimpressed – and some aren’t afraid to double their expectations.
“In the short term, there could be some volatility,” CryptosRus George Tung told Yahoo Finance on Monday. “In the long term, inflation will be an ongoing problem, and bitcoin is seen as the best inflation hedge at this point.”
Samson Maw, chief strategist at bitcoin software firm Blockstream, was among those anticipating a move into the six-figure territory. He insists that the high water sign is still a real possibility.
“We’ll see $100,000 in the first half of the year,” Mao told Yahoo Finance.
He acknowledged 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 sufficiently long time horizon, [Bitcoin] Do your own thing.”
Yields and volcanoes
His comments follow a similar prediction from El Salvador’s president-turned-Bitcoin evangelist Neb Bukele, who made a similar call over the weekend. Bukele expects two more countries to adopt bitcoin as legal tender this year.
Recently, Blockstream and El Salvador made headlines, after Bukele and Mow revealed a partnership to offer so-called “volcanic bonds.”
Half of this $1 billion in sovereign debt will go to fund “Bitcoin City,” an economic development project located in the southern part of the country that is said to be a tax haven, which will also harvest geothermal energy near a Bitcoin mining volcano.
Among other amenities, Mao said the “zero tax on everything” development zone would turn El Salvador into “the Singapore of Latin America.”
While the bond is not yet available, Mow said Blockstream is working with a number of brokers.
The other half of the 10-year US dollar-denominated bond offering will be converted to Bitcoin. A 10-year bond with a maturity of 2032 carries a coupon of 6.5%. While Mow acknowledged that this new sovereign security is more popular with Bitcoin investors than the general investment public, he suggested that “yield-starved” institutions would take over the bonds.
El Salvador’s bond offering comes after the International Monetary Fund (IMF) warned since June that legalizing bitcoin exposed the country to significant volatility risks. However, like Bukele, Mow has 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.”
Bitcoin mining attempts to generate revenue by obtaining Bitcoin at below market prices. Hobbyists and individual companies do this by contributing computing power to the token’s decentralized payment network. Known as Proof of Work (POW), the system was never hacked, but its high energy has riled climate activists.
While the Chinese government banned cryptocurrency mining in June of 2021, the industry has re-emerged 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).
How Bitcoin is used and who is mining it can be tracked, but the process is not perfect. Asset payment bars allow monitors to track the flow of funds from different wallet addresses. Determining who owns any given wallet address—whether it’s a sovereign country, a company, or an individual—remains an art rather than a science.
A recent research paper published by the National Bureau of Economic Research (NBER) sheds some light on who owns Bitcoin. It found that individual holdings are “highly concentrated,” with the largest 1,000 investors controlling 3 million, or about 20%, of all bitcoins in circulation.
Antoinette Scheuer, an economist at MIT and one of the authors of the paper, told Yahoo Finance that this level of focus undermines one of the main promises of cryptocurrencies: the democratization of finance.
“We know that just by buying and selling, one of these individuals can create a massive amount of volatility in bitcoin, which has had disastrous consequences as we have seen,” Schwar said.
However, some Bitcoin investors are skeptical of these findings — even when an analysis by blockchain analytics firm Glassnode found that the growing number of “whales” indicated institutional interest in cryptocurrencies.
David Hollerith covers Yahoo Finance’s cryptocurrency. follow him Tweet embed.
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