Bitcoin had a roaring rally in 2020; what does 2021 hold for the cryptocurrency?

Bitcoin closed year 2020 above $29,000 capping an astounding rally in which it more than tripled, with analysts saying 2021 will definitely see volatility though its outlook remains less than clear.

The cryptocurrency benefited from a number of events this year, beginning with the pandemic — which prompted monetary authorities to print currency, leading to fears of inflation — to bitcoin gaining increasing acceptance as a medium of exchange.

Bitcoin was launched in 2009 by an anonymous user/s as a decentralised digital currency not overseen by any authority, with its transactions being verified and settled through a distributed ledger.

Since its launch, bitcoin has seen its price vault from $0.0008 to nearly $30,000 now amid hopes it could become the dominant medium of exchange of the future, though some economists have warned that such line of thinking is fairly speculative.

The cryptocurrency has also witnessed high volatility: since 2016, it has declined 20 percent ten times, 30 percent seven times, and 48 percent-plus four times.

So what does the outlook for bitcoin look like?

Following a rapid rise in 2020, the cryptocurrency could be in for a short-term decline as the pandemic wanes.

Miller Tabak Chief Market Strategist Matt Maley said he expects a 25 to 30 percent sell-off in bitcoin in January.

“As the pandemic starts to fade a little bit [and] maybe that liquidity becomes a little less plentiful, this (bitcoin) could get clobbered like it has many other times in the past,â€� he said.

Still, bitcoin continues to hold promise from a long-term perspective, for the simple reason that it could eventually deliver on the promise it holds as an instrument that could transform how money is exchanged.

Michael Bapis of Vios Advisors recently told CNBC that investors should hold onto bitcoin if they have a long-term — three-, five-, seven-year — perspective.

“I just think you own it and put it away for a long-term investment and watch how it maybe transforms the currency and the world we live in today,� Bapis said.

Irrespective of the bullish outcome, others, such as John LaForge of Wells Fargo, warn that investing in bitcoin comes with its risk, comparing the speculative frenzy surrounding the cryptocurrency to the 1850s California gold rush that ended in a damp squib.

This is not to say that things are not improving for bitcoin.

And while investors have both speculative and investing interest in bitcoin and cryptocurrencies in 2020, 2021 would center around continual improvements between traditional and crypto markets,

Pierce Crosby, General Manager at financial data company TradingView, said 2021 could see continual improvements between traditional and crypto markets — meaning the digital currency could see greater adoption as an acceptable medium of exchange.

For instance, in October 2020, Paypal said it would allow customers to pay through popular cryptocurrencies such as bitcoin and ethereum.

“There are many such use cases for crypto, and we expect these to expand rapidly in the coming year,” Crosby told Forbes recently.

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