Bitcoin’s price is expected to hit $36 602 in 2021, and ether is forecast to reach $1 451, extending its phenomenal 340% sprint so far this year.
This is according to the latest Kraken Crypto Sentiment Survey for the second half of 2020. Kraken is one of the world’s largest crypto exchanges.
This is not always an accurate picture of how the market plays out.
When the same survey was conducted in the first half of 2020, Kraken investors forecast a price target of $22 866 for bitcoin (it is now about $19 145) and $810 for ether (this week trading at $583).
Some 59% of respondents believe ether, the second largest cryptocurrency by market cap after bitcoin, will at least hit $800 in 2021, making it the coin to watch over the coming year.
Respondents’ favourite altcoins (which are crypto coins other than bitcoin) are ether, polkadot, chainlink, monero and XRP.
When asked what DeFi (decentralised finance) tokens they owned, survey respondents listed uniswap (UNI), chainlink (LINK), yearn.finance (YFI), kava.io (KAVA) and kyber network (KNC).
Two of the big altcoins to emerge in 2020 were polkadot and chainlink, both of which have vast community and developer support with ever-expanding partnerships to build new use cases for their technology.
Crypto investment decisions are decided by influencers and experts (14%), project content (13%), news publications (13%), onchain data (when transactions are verified on the blockchain) and activity (12%), and Twitter (12%).
Technical analysis accounts for 32% of trading decisions, fundamentals 16% and market sentiment 13%.
A key factor driving crypto prices is the state of the global economy: “Following March 12th’s infamous ‘Black Thursday’, mounting concerns over monetary and fiscal policy and economic growth in the face of the Covid-19 outbreak has brought fear back into global financial markets,” states the survey report.
“The market has seen multiple instances where bitcoin exhibits a strong, positive correlation with traditional financial assets – such as gold and the S&P 500. Furthermore, bitcoin’s ever-growing acceptance and recognition by institutional investors in the traditional financial realm has roped bitcoin into discussions surrounding inflation, asset allocation, and portfolio management.
“For instance, in May 2020, billionaire investor Paul Tudor Jones stated that he was buying exposure to bitcoin as a hedge against inflation that he sees coming from central bank money printing.
“In August 2020, George Ball, former CEO of Prudential Securities and current CEO of Sanders Morris Harris, suggested bitcoin or other cryptocurrencies could be a ‘safe haven’.”
One of the big trends of 2020 was the growth of decentralised, as opposed to centralised, exchanges.
Centralised exchanges are owned by shareholders and typically abide by local rules and regulations. You are generally required to make deposits to purchase crypto assets on these exchanges, while decentralised exchanges have no single point of control, and do not require users to provide personal information or be subjected to Know Your Customer routines.
Privacy is sacrosanct in these decentalised exchanges, and transactions are handled peer-to-peer, without the intervention of a central control authority as in centralised exchanges.
All transactions are handled by computerised ‘smart’ contracts.
Another big trend in 2020 was the rise of decentralised finance (DeFi) and stablecoins, which are backed by fiat currencies such as the rand and US dollar. At the start of 2020, the total value locked (TVL) in DeFi applications was $700 million but exploded to $14 billion by November, as ‘yield farming’ and other money-making opportunities were developed.
DeFi allows crypto participants to lend or borrow in so-called DeFi liquidity pools, and the rate of participation in this activity is rapidly growing among crypto owners.
The total market cap of all stablecoins stood at nearly $24 billion in November, up 360% from the $4.8 billion at the start of the year.
Almost a quarter of respondents believe the surge can be explained by a flight to safety and demand for stability, especially after the outbreak of Covid-19.
Stablecoins like xZAR are backed 1:1 by rands, or in the case of Tether, 1:1 with the US dollar, and can be used to make payments without going through a bank.