TL;DR How high can the Bitcoin price go this cycle (2021-2025)? While predicting the exact top is of course impossible, we can make some educated guesses. Let’s look at the catalysts that drive this bull market, draw some charts comparing this cycle to previous ones, and look at the average prediction of the analyst crowd.
One way to look at the Bitcoin price is from the angle of two financial systems – the traditional financial system and crypto. These are like communicating vessels: money can flow between the two. For crypto prices to go up, buyers need money from the traditional financial system. This money is created by central banks, who provide banks with monetary ammo to lend more.
Liquidity
A fancy word for this flow of money liquidity. In some periods, with low interest rates, quantitative easing, and stimulus checks, money from tradfi flows richer. At other times, with high interest rates and tight fiscal policy, money is sucked back into the traditional system – and crypto prices go down.
Here’s a graph by by Global Macro Investor. The common way to measure liquidity is by the so-called M2. That’s the total money supply, including all the cash people have on hand, plus all the money deposited in checking accounts and savings accounts.
Notice the correlation between the year-on-year change between Global money supply and the change in the Bitcoin price. It’s quite straighforward: if liquidity goes up, number go up. And whenever the growth in money supply falls to zero or even gets negative, BTC gets pummeled. And then shoots back up again whenever the money printer goes brrr again.
As you can see, global M2 growth has bottomed together with BTC and is in an uptrend, just like BTC. Here’s another graph that shows the same mechanism.
The Floodgates
So that’s the monetary ebb and flow. But for money to flow into BTC and into crypto in general, you also need floodgates. Without a gate, the water can’t flow between the traditional financial system and crypto.
Here’s the BTC chart with some historical ‘floodgate launches’.
Until around 2012, when user-friendly exchanges such as Coinbase launched, it was very hard for the general public, let alone institutions, to get their hands on Bitcoin. There was no easy onramp, no floodgate.
In 2013 the Grayscale Bitcoin Trust launched, so accredited investors gained a gate to be exposed to the BTC price. The next big floodgate came in 2020 when apps such as Cash App, RobinHood and PayPal, allowed users to buy Bitcoin. The most recent floodgate – and a huge one – is the recent launch of the spot Bitcoin ETFs in the US. With a push of the button, every investor and wealth management platform can add BTC to their portfolio.
To sum up this point: incoming flood + new floodgate equals number go up.
By how much? Let’s do some technical analysis.
Power Law Corridor Model
Befofe we go into price targets of the current cycle, let’s zoom out. Here’s the Bitcoin Power Law Corridor model.
This model isn’t new but has gained renewed attention in recent months. It has been holding up well and is easy to use. Contrary to common log-linear plots, the Bitcoin Power Law uses logarithmic scales on both the x-axis and y-axis. This strips away day-to-day volatility and reveals…
Erik started as a freelance writer around the time Satoshi was brewing on the whitepaper.
As a crypto investor, he is class of 2020. More of a holder than a trader, but never shy to experiment with new protocols.
