Cryptocurrencies In 2021: Expectations Versus Reality

More and more people desire to jump on the bandwagon of cryptocurrencies – a still novel hot asset. With a company of the Kyrrex team let us share with you an objective and pragmatic view of the crypto market during outgoing 2021.

The projections related to foreign exchange rates and commodity prices are generally amongst the most difficult ones because of the number of factors affecting them. In this context, forecasting the rates of cryptocurrencies that may qualify as currencies, financial instruments, or commodities is even more challenging.

Amid the generally conservative projections, cryptocurrencies continued delivering growth in 2021. Despite the major shocks, such as bans of the cryptocurrency transactions and mining in China, BTC has broken the BTC/USD 60,000, and ETH broke the $4,000 threshold entering the
ETH/USD 4,300 area. We decided to take a closer look at the performance of the crypto leaders, outline the main reasons that led to these outcomes, and make our own projections.

A Look Back into 2020: How it All Started

The analysts were highly moderate in their projections, outlining primarily negative factors. BTC entered 2020 at BTC/USD 7,200, as the memories of the 2017 rapid increase and similarly quick fall in 2018 were still fresh. ETH was in the same boat, trading at ETH/USD 130. As the COVID-19 global pandemic hit, both cryptocurrencies felt the bearish trends in March-April with rapid recovery in May. The rest of the year was extremely bullish for both market leaders.

BTC ended 2020 at BTC/USD 29,001, showing a 302.79% or $21,802 since the beginning of the year. ETH finished 2020 at ETH/USD 738, which was a 464.06% or $607 growth. These figures suggest that BTC and ETH were gaining 0.46% and 0.56% daily in 2020. The crypto market was at its annual and historical peaks.

Overview of the Forecasts for 2021

The projections remained cautiously optimistic for 2021. The experts suggested the range between BTC/USD 30,000 and BTC/USD 36,000. The primary reason was the traumatic experience of 2017 when after the peak in December, BTC lost more than half of its value until March 2018. However, some analysts were extremely optimistic. For instance, Mike Novogratz, a hedge fund manager, set a level of $100,000 for BTC as of December 2021. Analyst Mike McGlone from Bloomberg set a goal of $50,000 in 2021 and $170,000 in 2022.

Evidently, the broad range of forecasts for cryptocurrency stemmed from the underlying level of risk. For instance, amid the daily return of BTC at 0.46% in 2020, its total risk, measured by standard deviation, reached 3.78%. Thus, the level of risk was 8.2 times higher than the level of return.

Analysis of Cryptocurrencies and Their Performance in 2021

When assessing the results of 2021 so far, it is possible to say that the volatility of the top-ranking cryptocurrencies grew significantly. The rollercoaster ride began in February 2021 and peaked in May with the BTC/USD 58,000 and ETH/USD 3,900. The sharp decline continued through
July 2021, with the bottom levels of BTC/USD 32,000 and ETH/USD of 18,000, respectively.

The second growth wave continued through November with the historical peaks of BTC/USD 67,000 and ETH/USD of 4,450. BTC gained $38,000 or 131% since the beginning of the year, as ETH added $3,700 or 501%. When assessing the volatility-related risks, it is also possible to observe their increase to 4.37% daily for BTC and 5.90% daily for ETH. Unlike
in 2020, the risks were 12 times higher for BTC than its returns. At the same time, the risks relative to returns for ETH fell from 9 times in 2020 to 8 times in 2021.

Reasons Behind the Cryptocurrency-Related Trends

Looking back at the projections made in December 2020, the analysts expected more regulations and a surge in liquidity within the crypto markets. Both expectations were accurate as the regulations came in both
emerging and developed markets, while the liquidity levels were at their peaks primarily during the periods of declining prices.

The launch of the Bitcoin futures Exchange-Traded Funds (ETFs) on the New York Stock Exchange (NYSE) in October 2021 constituted the main positive news in 2021. At the same time, the bans on BTC mining and transactions in China in September 2021 were the main sources of shocks. The smaller-scale events, such as public statements of traders, entrepreneurs, and executives, continued affecting cryptocurrencies.

Current Expectations for 2022

The overview of the current expectations shows a larger share of optimists and a smaller share of conservatives. The prediction range for BTC is between BTC/USD 200,000 and BTC/USD 300,000. The moderates are awaiting the end of 2021 to assess the duration of the current bullish trend for both cryptocurrencies.

The observations made for 2020 and the 10 months of 2021 demonstrated several important trends.

●      First, the risks for the largest cryptocurrencies were exceeding their returns.

●      Second, BTC and ETH have shown a strong positive correlation, as their prices commonly move in the same direction. However, this link weakened in 2021.

●      Third, the growth rate of BTC was substantially lower in 2021 in comparison to 2020, as the growth rate of ETH remained at the same level.

The mentioned trends suggest the potential price range between BTC/USD 90,000 and BTC/USD 120,000, as well as ETH/USD 16,000 and ETH/USD 32,000 if the current trends continue. Naturally, these projections focus on the price component of cryptocurrencies. At the same time, their utility as a medium of exchange also increases, as large corporations, including Microsoft, Wikipedia, AT&T, Burger King, KFC, Overstock, Subway,
Virgin Galactic, and others, are already accepting BTC as a form of payment. The broader use of crypto will continue contributing to its value, given its limited supply.