Bitcoin (BTC -1.61%) dropped below $ 30,000 per coin in May. The question on everyone’s mind is: Can Bitcoin reach $ 100,000 by the end of 2022? While a 3.3-times increase in price may seem out of reach for many, this sort of growth is not unheard of, especially for Bitcoin.
When Bitcoin dropped 40% in March 2020 due to COVID-19-induced market turbulence, it then rallied more than 10 times in the 12 months that followed. Past events are not a predictor of future performance, but we may be able to draw analogies to give us confidence in predicting the direction of the market.
Bitcoin and fear
Severe market downturns are accompanied by a general undertone of fear, while market exuberance is characterized by greed. Any fear and greed index will tell you that May 2022 is a period of fear, both in the Bitcoin market and the stock market. A low number means we’re closer to total fear, and a high number means we’re closer to absolute greed. The index hit a low of 10 in early May, which is a low number only comparable to the index of 8 hit on March 17, 2020.
While the fear and greed index is just a superficial metric that gauges the overall sentiment of the market, it shouldn’t be used to make or break your trading strategy. It simply provides a data point for evaluating the underlying market conditions.
Professional traders and influencer investors like Robert Kiyosaki still think that Bitcoin has further to drop before making any sort of recovery. Kiyosaki predicts that Bitcoin could go to $ 17,000 or even as low as $ 11,000. These sorts of valuations actually hold water in the event that the stock market itself continues its downturn. As traders and institutional investors exit riskier positions, part of that could mean adding more sell-pressure on Bitcoin. Since Bitcoin is still considered to be a risky asset, there may be insufficient buying volume to keep Bitcoin above $ 20,000.
How Bitcoin could reach $ 100k in 2022
It appears that Bitcoin, and the rest of the market for that matter is in a significant downtrend with few options for recovery. Therefore, I think it is unlikely that Bitcoin will reach $ 100k by the end of 2022. However, there are a few triggers that could spur a classic Bitcoin rally and move the price higher.
For example, when the stock market was crashing in March 2020, the Federal Reserve stepped in and implemented quantitative easing, arguably saving the market from inevitable collapse. Quantitative easing is the process of creating new money in order to buy bonds and securities. This stimulates the economy by reducing interest rates and maintaining a basic level of confidence in the market.
If things get much worse in the regular markets, we could see a repeat of March 2020, leading to new inflows into public markets, including Bitcoin. Quantitative easing has historically led to market growth and a rise in the price of publicly traded assets. Bitcoin is not an exception here. After quantitative easing began in March of 2020, Bitcoin rose nearly 600% by the end of the year.
The other trigger worth exploring is the continuation of adoption of Bitcoin at the institutional and governmental level. Historical Bitcoin bull runs have been largely a result of supply squeezes in combination with increased retail buyer demand. But now, there is a strong value proposition for countries and businesses alike looking to shield themselves from systemic inflation of their respective currencies. Bitcoin still carries the narrative of being an effective store of value, despite the 50% downturn from all-time highs in late 2021. Under this narrative, companies like MicroStrategy (NASDAQ: MSTR) and Block (NASDAQ: SQ) continue to buy Bitcoin in order to beat inflation and preserve the buying power of their treasuries over multi-year time spans.
Countries buy Bitcoin
El Salvador hosted leaders from 44 nations in May in order to explain to them the strategy of adopting Bitcoin as a legal tender within their borders. The event was more about financial inclusion with a peripheral focus on Bitcoin as the most inclusive financial network in the world. Although none of the central banks of the countries that attended have yet to announce their own adoption of Bitcoin, there is some evidence that El Salvador’s strategy is spreading to other nations.
In early May, the Central African Republic became the second country to adopt Bitcoin as a legal tender. So El Salvador no longer stands alone in its Bitcoin-based strategy. Since announcing the switch to a standard Bitcoin in 2021, El Salvador has purchased more than 2300 BTC. If other countries were to join the bandwagon, and purchase Bitcoin in similar volumes and frequency, then this would be the level of sustained demand and buying required to push Bitcoin past previously established price levels, and to new heights.
$ 100,000 Bitcoin is in the cards for 2022
It is not impossible for Bitcoin to reach $ 100,000 in 2022, although it is unlikely. Several factors need to line up perfectly in order for Bitcoin to increase more than threefold to reach $ 100,000.
First, the world economy needs to hold together, recover, and strengthen. Next, a prolonged period of sustained demand and buying needs to be directed at Bitcoin. Last, larger entities such as institutions, central banks, and countries need to incorporate Bitcoin into their strategies, monetary policies, and economies. With each of these factors in mind, I think it is more likely that Bitcoin will reach $ 100,000 in 2023 or 2024.