Bitcoin is the world’s largest cryptocurrency by market capitalization and greatly influences the price of other digital currencies. Bitcoin reached inconceivable heights last year reaching a price of $69,000 and a market cap of $1.2 trillion in November.
As 2022 begins, many crypto investors will be looking to reallocate funds and create the strongest portfolio by investing in Bitcoin. As the tapering of quantitative easing begins and the risk of interest rate hikes appears on the horizon, it is not unwise to question whether Bitcoin should be part of an investment portfolio. This article will take a look at the fundamental aspects that influences the value of Bitcoin and what experts predict the price of Bitcoin will reach in 2022 and the near future.
Bitcoin is a Proof-of-Work (PoW) blockchain, and associated cryptocurrency (BTC), that was created in 2009 by the pseudonymous Satoshi Nakamoto. It was the first PoW blockchain to be created and has led to the evolution of the cryptocurrency market that we know today.
Bitcoin was designed to be a peer-to-peer borderless and permissionless network for transactions. It allows any user to transfer wealth directly without having to use an intermediary, such as a bank. The Bitcoin blockchain (often thought of as a distributed ledger) processes and stores each transaction, while the Bitcoin cryptocurrency (BTC) is sent across the network to transfer funds.
Although developed as a peer-to-peer transaction network, due to an exponential demand for the cryptocurrency coupled with a limited supply, each BTC is now more commonly seen as a ‘store of value’. As a result of this store of value characteristic, and historic record-breaking returns, price predictions have become extremely important.
According to reputable industry experts such as Anthony Pompliano, CEO of Morgan Creek Digital, Adam Back, CEO of Blockstream and Twitter personality of the infamous Bitcoin Stock-to-Flow model (S2F), the general consensus is the market cap of Bitcoin will reach $1.93 trillion by the end of 2022. This equates to a Bitcoin price of $100,000.
|Expert||Price Prediction For 2022 (USD)|
|CEO of Morgan Creek Digital, Anthony Pompliano||$100,000 - $500,000|
|Stock-to-flow model (S2F) Twitter personality, Plan B||$110,000|
|Goldman Sachs Analyst, Zach Pandl||$100,000|
|CEO of Blockstream, Adam Back||$100,000|
|CIO of Bitwise Asset Management, Matt Hougan||$100,000|
|CEO of Kraken Exchange, Jesse Powell||$100,000|
- Anthony Pompliano ($100,000+) - Anthony Pompliano is a digital entrepreneur, Bitcoin personality, and Founder of asset management firm Morgan Creek Digital. He has previously expressed several bullish views on Bitcoin and has openly admitted that Bitcoin composes 50% of his portfolio. Although Pompliano previously estimated that Bitcoin would reach $100,000 by December 2021, leading into 2022 he has similarly high expectations. During an interview with Fox News, while Pompliano agreed $100,000 was still a nice round number that has been predicted by extrapolating previous cycles he also said “you almost need a shocking number to get people to part with their Bitcoin”. While Pompliano didn’t detail what that number could be he did compare 2022 to the price advances witnessed within 2017, when Bitcoin jumped from $1,000 to $20,000 - a 1900% increase. Based on a January 2022 value of $36,000, a similar jump would place Bitcoin at over $500,000.
- Plan B ($100,000) - Plan B is the pseudonymous Twitter user that has become a popular Bitcoin supporter thanks to promoting the use of the stock-to-flow (S2F) model. S2F models Bitcoin as a scarce commodity - similar to gold or platinum and uses that to predict future prices. In the case of Bitcoin, the stock is defined by the current number of Bitcoins in circulation and flow is defined by the number of Bitcoins mined in a single year. As the flow of Bitcoins is pre-programmed to decrease with time, the future price can be predicted. According to the model, Bitcoin price should be at or around $110,000 throughout much of 2022.
- Zach Pandl ($100,000) - Goldman Sachs Analyst, Zach Pandl, released research briefing notes to clients in January 2022 that detailed Bitcoin’s potential for the next few years. Pandl’s and Goldman Sach’s predictions rely on comparing Bitcoin to the market capitalization of gold. By making comparisons to gold, he said it “can help put parameters on plausible outcomes for Bitcoin returns.” According to Pandl, Bitcoin currently accounts for 20% of the ‘store of value’ market. If that number increased to 50%, the price of Bitcoin would likely reach $100,000.
- Adam Back ($100,000) - Adam Back is one of the original Bitcoin developers and was the third person ever to own the digital currency. In 2014, he also established the blockchain technology company, Blockstream, which has become a leading authority on blockchain development. Although giving his latest prediction in August 2021, Back believed that Bitcoin had the potential to reach $100,000 within the next 12 months. By comparing Bitcoin with physical gold, Back said that it was easy to see Bitcoin take market share away from the commodity. If the market cap of gold moved into Bitcoin it could place the price of each coin into hundreds of thousands of dollars.
- Matt Hougan ($100,000) - Matt Hougan is the Chief Investment Officer for Bitwise Asset Management, a company that has helped to manage investments worth over $1.5 billion. During an interview conducted with Bloomberg TV in December 2021, Hougan outlined his thoughts for what 2022 might have in store for cryptocurrencies, including Bitcoin. According to Hougan, institutions are still in a relentless bid for crypto assets, Ethereum in particular, but Bitcoin as well. “Institutions we speak to every day at Bitwise, the advisors we speak to, are still moving into the market. I think $100,000 [for Bitcoin] could be in target for 2022.”
- Jesse Powell ($100,000) - Jesse Powell is the CEO of Kraken, which has become one of the world’s leading cryptocurrency exchanges. During an interview in August 2021, Powell predicted that Bitcoin could reach $100,000 by the end of 2021 or early 2022. However, Powell reversed his opinion later in 2021 due to the sideways price action the leading cryptocurrency had been experiencing. Taking this into account he said that a crypto winter was now possible in 2022. However, the entrepreneur added that any price under $40,000 was a buying opportunity. If Bitcoin dropped he didn’t expect it to stay down for long.
$100,000 per Bitcoin is a prediction that has been anticipated for several years due to its limited supply, growing demand and devaluing fiat currencies. Leading industry bodies including Goldman Sachs and JP Morgan believe $100,000 per coin is a strong possibility. Their reasoning for Bitcoin reaching that price is if the coin continues to capture ‘store of value’ market share.
By the end of 2022, the circulating supply of coins will have increased to approximately 19.27 million. To reach a value of $100,000 per coin, the market capitalization of Bitcoin would need to reach $1.93 trillion. This requires a $1.3 trillion increase in market cap from January 2022.
Understanding the fundamentals of Bitcoin, including what it is and how it works is crucial to understanding where the price of Bitcoin may go in the future. It is critical to analyze the metrics of the system that influence the supply and demand of the market. Other reasons include institutional adoption, number of investors, legalization and macro-economic factors such as inflation and devaluation of fiat currency. To learn what will happen to Bitcoin in a recession and what can cause Bitcoin to crash, read this article.
Limited Amount of Bitcoin
Bitcoin has a limited total supply of coins. Only 21 million Bitcoin will ever exist. However, not all of those coins are currently in circulation. Out of the maximum of 21 million, around 18,940,000 are currently liquid. The rest of the Bitcoin still needs to be unlocked through the process of mining. Based on the halving events, the last Bitcoin is expected to be mined in 2140.
Miners are currently rewarded 6.25 BTC each time a new block is added to the blockchain. This occurs approximately every 10 minutes which equates to 900 BTC every day. This means that by the end of 2022, 328,500 BTC will have been added to the circulating supply. This takes the total circulating supply to approximately 19.27 million at the time of writing. The impact of the Bitcoin halvings should increase the value of Bitcoin based on supply and demand dynamics.
During the 2017 bull run, the demand for Bitcoin rested in the hands of retail investors; early adopters that believed in what Bitcoin was trying to achieve. However, in 2021, institutions have taken a much more positive stance towards the leading cryptocurrency. Companies that hold Bitcoin on balance sheets include MicroStrategy, Tesla, Galaxy Digital Holdings, Voyager Digital Inc, and Block Inc. According to a report, in August 2021 approximately 1.6 million BTC had been accumulated by public companies which have since increased.
In addition to corporations, financial institutions and banks globally have started to add Bitcoin payment and investment options. Visa and PayPal now offer crypto purchases and storage. JPMorgan and Goldman Sachs now offer Bitcoin investment products to their wealthiest clients.
Number of Bitcoin Owners
As Bitcoin continues to move away from a transactional currency and towards a store of value, the number of investors holding Bitcoin has been increasing reducing the number of coins in circulation. Otherwise known as ‘hodling’, Bitcoin investors are no longer converting Bitcoin back into fiat currency or other altcoins. As a result of this behaviour, the number of liquid Bitcoin on exchanges is slowly decreasing. The supply and demand imbalance is putting pressure on the price of circulating Bitcoins. For instance, around 14.88% of Bitcoin's have not moved in the last 1 to 2 years as shown below.
2021 was a pivotal year in Bitcoin’s history for many reasons. However, one key development during the year was the adoption of Bitcoin as a legal tender within the country of El Salvador. El Salvador became the first country in the world to pass a law stating that Bitcoin could be used to pay debts and taxes. It was the first country to do so and may have set a precedent for more countries to follow suit in 2022. El Salvador has already accumulated over 1500 BTC.
Inflation & Devaluing Fiat Currency
As a result of the fight against the Covid-19 pandemic, governments globally have been printing more fiat money than ever before. Since the start of 2020, the US Federal Reserve has printed 80% of all US dollars that are in existence. This has resulted in a devaluation of currencies worldwide and an increase in global inflation. Thanks to its limited supply, Bitcoin is seen as a hedge against both inflation and devaluation.
- Adoption of the Lightning Network. First proposed in 2015, the Lightning Network lies on top of the Bitcoin blockchain like a second layer. The network allows transactions to be processed off the main Bitcoin blockchain (off-chain) by creating payment channels between users. Transactions can be completed much quicker and space is freed on the main network. Although slow to get going, the Lightning Network is continually increasing the usability of Bitcoin. Companies that integrated with the Lightning Network in 2021 included Blockstream, Block Inc, and Twitter. A higher number of integrations is anticipated for 2022.
- Taproot Upgrade. Marked as the biggest change to the network in 4 year years, the Bitcoin Taproot upgrade was completed in November 2021. The addition of Schnorr signatures increased privacy and will help to bring increased functionality of smart contracts to the network. Historically, Bitcoin has been restricted to a payments network. However, with increased functionality from Taproot, Bitcoin can start to compete with smart contract blockchains such as Ethereum and Solana.
- Spot Bitcoin ETF. In 2021, the U.S Security and Exchange Commission (SEC) approved the first Bitcoin futures ETF. It marked the first step towards a SEC-regulated spot Bitcoin investment product. It is the hope of many in the crypto community that a spot Bitcoin ETF will be approved within 2022. If approved, a spot ETF could result in a significant influx of BTC investment. The closest product to a spot Bitcoin ETF currently is Grayscales Bitcoin Trust (GBTC). Grayscale, which is a cryptocurrency asset management company, has already filed to convert its Grayscale Bitcoin Trust to a spot Bitcoin ETF. The outcome will be likely be determined in 2022.
Bitcoin remains one of the strongest investment options within the cryptocurrency markets. Although it has enjoyed ‘first mover’ advantages since its inception in 2009, it has never relinquished the leading market position in terms of market capitalization. Its price continues to steer the value of all other leading altcoins within the market.
Ultimately, the fundamentals and tokenomics behind the coin highlight an increasing demand and limited supply. While the fundamentals would suggest that, over the long term, Bitcoin price should steadily rise in value, adoption from institutions and the global public needs to be there. If that adoption continues, expert Bitcoin price predictions of $100,000 could fall short and provide one of the best returns of any digital asset. However, there are a number of factors that can influence the price of Bitcoin such as the performance of the stock market.