Reflecting on 2020, I struggle to think of another year in recent decades with both so many all-time highs and all-time lows.
From the COVID-19 pandemic raging across the global population to record-setting wildfires in the western United States to numerous other calamities, the world this year has often appeared figuratively and literally in flames.
Starkly juxtaposed with this death and destruction have been uplifting scenes of pandemic-stricken communities pulling together and celebrating front-line workers, innovations such as and the first privately funded, human-flown space launch of a reusable rocket and the red-hot markets and crypto-asset space, the focus of this article.
Years from now, I believe we will look back on 2020 as a critical inflection point in the wider adoption of crypto-assets and blockchain technology.
From the long-heralded and -awaited arrival of , to the acceleration of digital currency and payments spurred on by the pandemic, to greater regulatory clarity in key jurisdictions like the U.S., 2020 has proven, in my view, to be crypto’s best year yet.
As we head into 2021, what can we expect for crypto?
Two macro forces that have powered the ascent this year of crypto assets like to yet another new all-time high show little signs of slowing down.
Arguably the single biggest factor driving increased crypto asset valuations and adoption is concern over government spending and monetary stimulus. Indeed, debt levels were already worrisome prior to the pandemic, with many () sounding the alarm over world-war levels of public indebtedness, sans world war.
However justified the generally bipartisan pandemic stimulus may be, the simple mathematical reality is that when governments and central banks suppress interest rates and increase the money supply, then the value of relatively scarce assets will often increase.
Simply put, more fiat currency and debt chasing a finite number of things (e.g., bitcoin) equals a higher price for those things.
Within the crypto space the biggest winner from this trend is bitcoin, which appears to have achieved broader product market fit this year on Wall Street and elsewhere around its investment thesis.
Indeed, there are some recent indications that, alongside growing inflation fears, some investors are rotating part of their gold portfolio allocation into bitcoin. A continuation of this trend would provide strong support for further bitcoin price appreciation.