4 reasons why crypto prices may or may not rise
Posted: Feb 18, 2021
If you’ve been reading the news or investing within the past year or two, you’ve likely heard or even experienced the cryptocurrency boom for yourself.
Bitcoin, Ethereum, Litecoin, and even Dash have seen a spectacular rise in price valuations. With investors coming out of the woodwork, demand for these digital assets has risen unlike never before.
At the time of writing, Bitcoin prices have once again soared to an all-time high of $50,000. It’s almost hard to believe that less than a year ago, most analysts were questioning if Bitcoin prices would ever hit the $20,000 mark again.
All of that seems to be a distant memory with announcements from companies like Tesla (TSLA) and Paypal (PYPL) revealing that they would begin accepting cryptocurrency payments.
This turn of events could spark a domino effect with more companies choosing to accept cryptocurrencies as a medium of exchange.
However, this does not mean that all is good in the world of cryptocurrencies. With Ripple Labs embroiled in a lawsuit with the SEC over securities violations, some analysts fear that an unfavorable verdict could trigger an exodus of investors thus driving down prices.
With all of this in mind, let’s take a look at why 2021 may or may not be the year in which the crypto bull run continues.Why prices may continue rising?1. Increased consumer confidence
When Elon Musk announced that Tesla would begin accepting Bitcoin payments, the market exploded into action. Within just a matter of days, prices of BTC soared as demand increased unlike never before.
Previously, institutional investors have expressed interest in acquiring crypto assets - something which set off a buying frenzy in 2020 and 2021. Now that the maverick Elon Musk has given his "stamp of approval" on Bitcoin, it is fair to say that increased investor confidence will drive prices even further upwards.
2. An unstable economic outlook
2020 was a truly challenging year for many of us. The outbreak of COVID-19 resulted in lockdowns on an unprecedented scale as nations struggled to contain the spread of the virus.
With healthcare systems overwhelmed, entire countries were forced to enter into a state of extended lockdown. This resulted in a drastic drop in consumption, mass layoffs, and the closure of many businesses.
In an effort to bolster the economy, governments were forced to inject record quantities of cash into the system. Even then, millions of jobs were lost and the true cost of the COVID pandemic is yet to be felt
Due to this, investors have turned to alternative investments such as cryptocurrencies in order to shore up the value of their portfolios. This resulted in crypto prices rising dramatically in 2020.
Now as we enter into 2021, it is quite likely that investors will continue to purchase cryptocurrencies in large quantities as they prepare for a prolonged recession.
Want to know more? Click here to learn how is cryptocurrency value determined.Why prices may fall?1. Government intervention
One of the reasons why cryptocurrencies have been so popular is the fact that they are unregulated and entirely decentralized. This has caused massive consternation amongst governments around the world due to fears of money laundering and capital controls.
Furthermore, the entry of institutional investors into the market may spark calls from politicians to increase regulatory oversight on the cryptomarket.
Doing so will result in cryptocurrency quickly losing its most critical selling point; its independence. As we’ve seen from the SEC’s lawsuit against Ripple, governing bodies will not hesitate to take action to reign in crypto enthusiasts.
This uncertainty may cause a mass exodus of investors dumping their cryptocurrencies in record numbers. Hence potential leading to a drop in prices.2. Profit taking by whales
Another reason why the market may see a price correction in 2021 could be due to profit taking by whales looking to crystallize on their profits. Whales are defined as investors with large holdings of Bitcoin and cryptocurrencies.
These investors can influence market prices by driving up demand hence increasing prices or flooding the market with cryptos and leading to a drop in prices.
Given recent price movements, some whales may cash out and flood the market with Bitcoins thus placing downwards pressure on prices.
At the end of the day, it is nearly impossible to anticipate how market forces will act in the days to come. Your best options are to diversify your portfolio and ensure that you have buy/sell orders in place in order to capitalize on any opportunities that come your way.
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