Cryptocurrency has long been seen as an outlier in the world of finance. Even in 2017, which saw Bitcoin experience a 2,000 percent increase in value, institutions and major investors remained leery of the crypto markets.
JPMorgan (NYSE:JPM) CEO Jamie Dimon even went so far as to compare Bitcoin to the Dutch tulip bulb bubble of 1637, while Warren Buffet referred to the cryptocurrency as a mirage.
Despite all of these doom and gloom predictions, the broader cryptocurrency markets continue to thrive in 2021. While predictions vary, some market research firms believe it could reach US$5.19 billion by 2026, with a CAGR of 30 percent.
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Some of the biggest financial institutions and fintechs, such as Square (NYSE:SQ), Mastercard (NYSE:MA), and CME Group (NASDAQ:CME), have fully embraced these digital currencies through integration and the creation of new financial products. Additionally, plug-and-play payment integrators like Banxa (TSXV:BNXA,OTCQX:BNXAF) are bridging the gap between fiat and cryptocurrency. With such widespread adoption, it’s clear that today’s cryptocurrency market has more institutional support than 2017s.
But before diving deep into where the cryptocurrency markets are going, it’s important to understand what happened in 2017’s bull run and why the current bull market may be different.
2017: A digital gold rush
Whether the result of coordinated manipulation or cultural fervor, the popularity of cryptocurrency in 2017 was immense. A large influx of retail investors jumped on the opportunity to be part of the cryptocurrency revolution.
It even received celebrity endorsements from the likes of DJ Khaled, Floyd Mayweather and Jamie Foxx. Brands like Long Island Iced Tea pivoted to blockchain when they became Riot Blockchain (NASDAQ:RIOT). Multiple countries launched their own national cryptocurrencies, including Japan, Israel, Venezuela and Russia.
Bitcoin was even featured on an episode of The Big Bang Theory, while media outlets began publishing headlines like Everyone’s Getting Hilariously Rich and You’re Not. This cultural buzz attracted a wave of newer investors, some of whom mortgaged their homes to purchase Bitcoin. Others even went so far as to pour their life savings into crypto
It did not last. Bitcoin eventually plummeted 65 percent in early 2018 and by 80 percent in Q4 of that same year—reminding investors just how volatile the cryptocurrency markets can be.
What caused the 2017 bubble to burst?
There are many reasons why 2018 saw a rapid decline in crypto prices. Some of the more recognized reasons include:
- Cryptocurrency’s public image was poisoned due to several high-profile hacks and the ensuing government crackdowns.
- A lack of support from major investors and financial institutions stymied Bitcoin’s entry into the mainstream.
- The SEC refused to approve a Bitcoin ETF, which would have allowed cryptocurrency to gain traction in the traditional financial markets.
- Infighting amongst cryptocurrency developers resulted in multiple hard forks, fragmenting the market.
- Inexperienced investors made investment decisions based on emotions and FOMO rather than data.
- Lastly, and perhaps most importantly, a lack of infrastructure for the whole industry, such as custody, insured custody, treasury management, and fiat “gateways” meant that it was difficult for institutions and the broader community to enter the market.
Ultimately, 2018 was Bitcoin’s worst year on record, and saw market losses of nearly $700 billion. Shortly thereafter, however, its value once more began to climb. In 2019, Bitcoin prices more than doubled, making it one of the year’s best-performing asset classes.
A new cycle takes shape: What’s different about 2021’s bull run?
By December 2020, the price of Bitcoin reached US$19,100 — almost exactly where it was in 2017. Through 2020, it continued to increase in value, reaching an all-time high this month. Most agree that the crypto market is now in the midst of another bull run, one which could see Bitcoin selling at US$300,000 by the end of the year.
Is this history repeating itself? Is this another bubble due to burst? Or is there more at play here? There are multiple similarities between the current bull run and the 2017 bubble.
First, the cycle of mining reward halvings and Bitcoin’s supply scarcity largely parallels what we saw from 2016 through 2017. Both runs also experienced a high rate of Bitcoin accumulation and holding — currently, there is more inactively-held Bitcoin than at any other point in history. And as noted by Mint, the current hype surrounding decentralized finance and non fungible tokens appears to mirror the cultural frenzy that defined the crypto market in 2017.
But whereas Bitcoin’s 2017 run was driven primarily by individual retail speculators, 2021’s cycle appears to be at the hands of institutional investors:
- In January, JPMorgan predicted that Bitcoin could eventually hedge out gold as an “alternative” currency, rescinding its previous position.
- Business intelligence firm MicroStrategy (NASDAQ:MSTR) purchased $650 million worth of Bitcoin in December, bringing its total Bitcoin reserves to 70,470 . It now plans to use these reserves to pay its directors.
- In mid-April, Brevan Howard, one of Europe’s largest hedge funds, announced plans to invest in cryptocurrency.
- Paolo Ardoino, CTO of Hong-Kong based crypto exchange Bitfinex stated earlier this month that he believes Bitcoin’s current rally is at least partly fueled by institutional buyers.
- Tesla’s (NASDAQ:TSLA) CEO Elon Musk purchased US$1.5 billion worth of Bitcoin in February 2021.
This is not the only difference. Per Bitcoin Magazine, Bitcoin in 2017 was akin to the Wild West, without regulation or consumer protection. Money flowed from Bitcoin into a rash of ICOs, which more than 86 percent fell below their initial listing price by 2018. In retrospect, ICO’s were billed as an alternative to traditional fundraising avenues, such as venture capital or private equity. It was cheap money, and the except for a few notable exceptions, the quality of the investments on offer was poor.
The money flowing from fiat to Bitcoin in 2021 is staying in Bitcoin, says the publication — altcoin volumes are relatively low, as Bitcoin is being accumulated with the long-term in mind rather than being used for trading or as a means of shifting capital.
The crypto market today is also more mature than it was in 2017. Advances in network and computing infrastructure have made it easier to transfer and store cryptocurrency. Bitcoin futures, ETFs and large exchanges like Coinbase (NASDAQ:COIN) are now publicly-traded and available to retail investors. Integrating crypto payments is easier than ever thanks to simplified integration platforms like those offered by Banxa.
The barrier to entry is lower than ever, making it possible for retail investors to safely take part in the crypto markets. Accelerating adoption even means consumers can use popular cryptos as a form of payment. Internationally, countries such as China, which previously cracked down on crypto, now view it as an investment alternative.
COVID-19 has also had a considerable impact on the current bull market. Alongside fears of contracting the coronavirus, social lockdowns, record unemployment, inflation and economic uncertainty have driven significant investment into crypto. This is according to crypto expert Mitchell Koulouris, who has referred to the pandemic as “the perfect storm” for Bitcoin and other crypto currencies.
Finally, the past several years have seen the rise of multiple crypto exchanges, making investment into cryptocurrency both safer and more streamlined, particularly for professional investors. More recently, these exchanges have begun partnering with organizations like Banxa to make crypto more accessible for individuals and businesses alike via integrated payment gateways.
There are certainly commonalities between the current bull market and the 2017 bull market. Ultimately, crypto’s 2021 bull run appears more stable, embraced by former critics, institutions and high net worth investors alike. As crypto awareness and adoption continues to grow, crypto could become a powerful store of wealth and a reliable alternative to fiat currencies.
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