Bitcoin & Ethereum: A Good Buy For 2021?

For the first time in, what seemed like YEARS, I got a question from a friend about Bitcoin.  Is Bitcoin (or Ethereum) a good buy for 2021?  

That's a bit of a loaded question.  It really depends on your risk tolerance and investment goals.  Cryptocurrencies, in general, are a high-risk, high-reward investment.   If you can't handle the volatility, then don't buy it.  But if you're looking for potentially amazing upside, then yes, cryptocurrencies are the only game in town.  

There are quite a few differences between buying Bitcoin in 2017 (when Bitcoin reached a previous all-time high of $18,000) and Bitcoin in 2021 (where it sits at over $30,000).

I remember attending a 2017 Thanksgiving party with my friends and everyone I talked to at the party knew about Bitcoin and had either bought some or wanted to buy some.  I was fielding an assortment of questions about how to open up accounts and how to buy it.  

In 2020, I received exactly 0 questions about Bitcoin and cryptos.  There seem to be little or no interest at all in Bitcoin.  Yet, why is Bitcoin at $30K+ if people seem to have lost interest?

Well, there are some major differences between the Bitcoin surge in 2017 and the Bitcoin surge in 2020.  

1) In 2017, retail investors were the main people buying Bitcoin and driving the price up.  In 2020, large institutions were the ones buying up Bitcoin and driving its price up even higher.  For the most part, retail investors have not participated in the Bitcoin surge in 2020.  Maybe that's why none of my friends have been asking me about Bitcoin (until today).

2) In 2017, Bitcoin spiked to $18,000 briefly but crashed back down very quickly.  In 2020, Bitcoin's price has risen steadily from the lows in March 2020 until now (over the course of 10 months).  Again, it speaks to the steady accumulation of Bitcoin by institutions such as Grayscale and large hedge fund managers that decided to invest.  

3) In Dec 2017, the Fed had just raised the Fed Funds rate to 1.50%.  In fact, in 2017, the Fed raised interest rates THREE times.  In 2020, the Fed lowered the interest rates to 0%.  This is causing asset prices to rise, including Bitcoin (and Gold).  The Fed (and US Treasury) also pumped in trillions of dollars into the economy through asset purchases and gave out stimulus checks and other stimulus.  In fact, the Government just approved another $600 stimulus check that have yet to arrive in most people's bank accounts. 

4) In 2016, Bitcoin halving occurred where the number of new Bitcoins minted through mining was halved.  Many believe that the reduced inflation of Bitcoin contributed to the price surge in late 2017.  Well, that same event occurred again in 2020.  The inflation rate of Bitcoin dropped from 10% in 2016 to 2.6% today.  That means, there's far fewer Bitcoins being mined today than in 2016.  If the same logic follows, then we could see a similar surge in crypto prices in late 2021.

5) 2017 was the height of the ICO craze.  It seemed like every "new coin" went up 1000% in a month.  It was just pure speculation and not much substance to these price increases. 

In 2020, there have been vast technological improvements to the cryptocurrency markets.  2020 was the year DeFi became popular.  It was also the year Ethereum launched their Eth 2.0 protocol upgrade. In 2017, it seemed like Coinbase crashed every time there was a big Bitcoin price surge.  There seemed to be a new hack every month.  In 2020, exchanges have improved both the scale and security -- a lot less crashes, far fewer hacks.  IMO, 3 years worth of technology advances in crypto markets have made investing in cryptos much less risky than in 2017.

Summary

A lot has changed in 3 years.  This is not the same cryptocurrency market that we saw in 2017.  This is not the same world either -- where the Government is giving out free money and Fed is lending at 0% interest rates.  The people buying Bitcoin today are very different than those who were buying it in 2017.  But I will leave you all with this thought:

If those retail investors, who have not really participated in the Bitcoin surge to $30K, decide to invest in cryptos again -- I can't even begin to imagine what Bitcoin's price will be at the end of 2021.