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Bitcoin News Cryptocurrency News

2021 Bitcoin Price Prediction: $250,000

If you’ve already read our Bitcoin price predictions, you are aware that we’re calling for Bitcoin to reach a price between $379,825 and $1,329,389 later this year. You may also be aware that Tim Draper is predicting the price of Bitcoin to reach $250,000 next year.

Tim Draper isn’t the only forecaster calling for the price of Bitcoin to reach a quarter of a million dollars. The Bitcoin Stock-to-Flow model is predicting the same price, by the end of this year.

PlanB, the creator of the model, a few moments ago tweeted that the model is predicting a 20% monthly increase in value of Bitcoin for the remainder of this year. That would put the price of Bitcoin at $250,000 each by December 31, 2021.

We would like to point out what should be obvious: the model predicts a steady 20% monthly increase in the “value” of Bitcoin. Theoretical value and market price can often be quite different. During periods of fear and negative press, market conditions can can cause the price to be substantially lower than value, and during periods of extreme bullishness and greed (as illustrated by the crypto fear and greed index), market conditions can cause the price to be bid to levels that are significantly higher than the value indicated by the model.

Nevertheless, there are strong indications from several factors – our favorite being the 4 year cycle – that the price of Bitcoin will be six digits later this year.

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Bitcoin News Cryptocurrency News

Crypto Fear And Greed Index Rebounds From 40

Two days ago, on January 22, the Crypto Fear and Greed index sharply dropped to a value of forty, moving the market sentiment from “Extreme Greed” to “Fear.” The index dropped to this level for the first time since October 3, 2020, when Bitcoin was trading at around $10,500. Today the index has recovered to a level of 70.

Before dropping to forty, the Crypto Fear and Greed Index topped at ninety five on January 6, demonstrating that investors turned extremely greedy amid Bitcoin hitting the all time highs about $42,000 on January 8. The Bitcoin price subsequently had a significant correction, dipping to as low as $28,750 three days ago, on January 21.

The Crypto Fear and Greed Index has been providing a reading of’ Extreme Greed’ for months now. Often considerable Bitcoin price pullbacks haven’t dampened the enthusiasm. For the whole month of December, as well as the outset of January, just about all readings had been above 90/100. Nevertheless, after the significant correction earlier this month, scores haven’t exceeded ninety.

Back in March of 2020, the index spent several weeks hovering around the extreme fear level of 10. This recent pullback to 40 is considered a healthy sign by market technicians who warn against overly bullish buying activity which can lead to a market becoming “overbought”.

Now that the excessive bullish sentiment has been cleared from the market, conditions are more favorable for Bitcoin to resume it’s climb.

How The Crypto Fear and Greed Index Works

Volatility is used by the indicator, social media engagement, market dominance, as well as Google Trends to assess investor sentiment towards the cryptocurrency.

Like the fear and greed indexes in the classic markets, the Crypto Fear and Greed index is actually a tool which measures 2 of the main emotions that affect just how much investors are actually ready to purchase cryptocurrencies such as Bitcoin.

The extreme fear level could be an indication that investors are very worried, which may suggest an excellent buying opportunity. In comparison, when investors are actually getting overly greedy, it might be an indication that the industry is actually ready for a correction.

The Crypto Fear and Greed Index is able to separate the bullish and bearish conditions of the market by measuring the levels of perceived demand and supply of the various buyers and sellers. When the sentiment of greed is prevalent, the index measures how high the prices are when compared to other times. When the sentiment of fear is prevalent, then the prices are lower than other times.

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It’s Not Just Institutional Thirst, Retail Demand For Crypto Reaches ‘Unprecedented’ Levels

There’s just not enough Bitcoin to meet demand.

That’s not just some hopium-based fantasy by the leader of a fringe crypto cult.

No, it’s simple fact from tallying just a couple places where Bitcoin can be bought.

We’ve reported that institutional money is moving into cryptocurrency assets, and that institutional demand is higher than it has ever been.

Retail demand is also currently at “unprecedented levels.”

Unprecedented levels

Israeli trading and investing platform Etoro warned customers in Europe on Friday of possible limitations on crypto purchasing over the weekend. In an email, the exchange said: “The unprecedented demand for crypto, coupled with limited liquidity, presents challenges to our ability to support buy orders over the weekend. In light of this, it may be necessary for us to place limitations on crypto buy orders.”

eToro’s statement acknowledging unprecedented demand is just one of many that point to the fact that there isn’t enough Bitcoin available at today’s prices to meet demand.

Pantera Capital’s recent monthly letter to investors states that:

In last month’s investor letter we discussed that after 30 months of operation, Square’s Cash App is estimated to be buying around 40% of all newly-issued bitcoin.

PayPal just launched their new service that enables customers to buy, sell, and hold cryptocurrency directly from their PayPal accounts. It’s already having a huge impact.

The bitcoin community is proud to have grown to 100 million users over twelve years. PayPal has 300 million active users. As we’ve argued — and will argue more fully in our December investor letter — this rally is much more sustainable than 2017. One of the main differences is the ease of investing in bitcoin now — via PayPal, Cash App, Robinhood, etc.

Previously the friction to buy bitcoin was pretty onerous: take a selfie with your passport, wait days to a week to get activated, daily limits.

Three hundred million people just got instant access to Bitcoin, Ethereum, and other cryptocurrencies.

BOOM! The results are already apparent.

PayPal’s crypto infrastructure provider is Paxos. Prior to PayPal’s integration of crypto, itBit, the Paxos-run exchange, was doing a fairly constant amount of trading volume — the white line in the chart below.

When PayPal went live, volume started exploding. The increase in itBit volume implies that within four weeks of going live, PayPal is already buying almost 70% of the new supply of bitcoins.

PayPal and Cash App are already buying more than 100% of all newly-issued bitcoins.

Only 900 New Bitcoins Created Each Day

Bitcoin supply is growing daily. Literally, it’s growing by 6.25 newly created Bitcoins with each new block mined. By design, one Bitcoin block is mined every 10 minutes, resulting in an average of 144 new blocks every day. 144 x 6.25 equals 900 new Bitcoins created each day.

Genuine Bitcoin Investor Demand

As we reported above, just Paypal and Cash App are responsible for buying more than 900 Bitcoin per day.

Let’s look at another rather obscure place to buy Bitcoin: LocalBitcoins.com. This is a site outside of the massive mainstream crypto exchanges. It is sort of a peer-to-peer classified ad site that matches buyers with sellers on an individual level.

Compared to the big exchanges, such as Coinbase, this site is tiny. For instance, Binance alone had a Bitcoin trading volume in the past 24 hours of $2.77 billion at press time.

Contrast that to the average daily trading of Bitcoin at localbitcoins.com which is a mere $6 million. The difference in size is staggering. The point being, trading volume at localbitcoins.com is a tiny, extremely tiny, amount of Bitcoin being bought each day.

Now, be aware that most of the trading volume on Binance and other big exchanges is just that: trading, not investing. A trader can buy and sell multiple times per day with each of those trades adding into the cumulative total trading volume.

On localbitcoins.com it is definitely not “traders” doing the trading, it is mom and pop type of people buying Bitcoin to hold as an investment.

So let’s look at the numbers. $6 million worth of Bitcoin are being bought right now every day on localbitcoins.com.

How many Bitcoin is that?

$6,000,000/$37,000 each equals 162 Bitcoin.

Remember, there’s only 900 being created. And this tiniest little peer-to-peer exchange is responsible for its users buying up almost 1/5 of all newly created Bitcoin each and every day. This is purely Bitcoin volume, and does not include other cryptos such as XRP and Litecoin.

Paypal and Cash App are already buying more Bitcoin than are being created each day. This tiny little site is facilitating the buying of nearly 20% of all new Bitcoin being create. What about the customers of Binance? What about demand from the customers of Coinbase, Gemini, Kraken, Bittrex, Bitstamp, Huobi, Bitfinex, and hundreds of other exchanges are are many times lager than localbitcoins? Where will all the Bitcoin come from for those buyers to be able to purchase?

Only Existing Holders Can Supply Bitcoin To Match Soaring Demand

One thing is certain, there is no way to increase the supply of new Bitcoin being created each day and available on the market. With demand absolutely overwhelming new supply, that only leaves existing holders willing to sell in order to satiate buyer demand.

Which means only one thing: prices will continue to be bid higher.

There’s good reason for the crypto fear and greed index to be pegged on greed.

How high is high? Here’s our Bitcoin forecast for this year and beyond.