Bitcoin (BTC) reached $ 50,000 this Tuesday (16); however, it has been increasing at a fast pace since mid-December 2020. What is happening to cryptocurrency? To comment on the current market scenario, its future prospects and the unprecedented movement of cryptocurrency in this year 2021, the Tecnoblog interviewed Valdiney Pimenta, CEO of BitPreço, and Marco Vinicius Castellari, CEO of Brasil Bitcoin.
Bitcoin resumed and then surpassed the previous record of $ 20,000 in December to continue reaching new highs throughout 2021. The work as a whole is broad, formed by high institutional demand, scarcity of cryptocurrency, entry of large investors and by assets have fallen into the mainstream media and the taste of an audience that grows every day.
Valdiney Pimenta is 42 years old, founded BitPreço in 2017 as the first cryptocurrency marketplace in Latin America, has a degree in computing and is an investor who worked with startups for years until he met crypto.
Marco Castellari co-founded Brasil Bitcoin in 2018, a cryptocurrency exchange that, even at a young age, is already one of the main Brazilian companies in the sector. Now 30, he is CEO of the company he helped create, a mechanical engineer graduated from Centro Universitário FEI and a self-taught developer.
Why does bitcoin rise so much in 2021?
The answer to that question is complex. The first step in understanding what is happening today is to analyze what has happened since the creation of bitcoin. Historically, cryptocurrency has behaved through cycles of appreciation and devaluation. The magnitude of increases and decreases varies according to numerous factors, but mainly due to the demand for the asset and its current offer. However, an intrinsic tool of the program behind digital currency affects its quantity available on the market every four years.
Halving, the mechanism that reduces BTC mining
“There is a mechanism in the bitcoin network that reduces the amount of coins offered on the market every four years,” explains Valdiney Pimenta. This system is called halving, when digital currency mining is deliberately reduced by its own program.
“This movement makes the cryptocurrency appreciate quite precisely because it becomes scarcer”, complements the CEO of BitPreço. Halving was activated in mid-May 2020, but its effects were dormant until large companies began to enter the world of digital assets.
Shortages in the face of the greatest demand in history
PayPal was the first company to significantly impact the cryptocurrency industry as early as 2020, giving millions of users worldwide access to a simpler way to trade crypto.
“When the demand for bitcoin increased, there was no more currency. This increased the price, attracted more companies’ attention and created a cycle of appreciation and demand ”, says Pimenta.
Meanwhile, Marco Castellari says that the movements of companies and news make more and more retail investors interested in crypto. “I believe that Tesla’s recent billionaire purchase has drawn the attention of other companies and people to bitcoin. This also increases the demand ”.
According to the CEO of Brasil Bitcoin, another factor to consider is the ease of investing in cryptography compared to other types of applications. “It is much easier, less bureaucratic and the rates are lower than, for example, dealing with stock market shares,” said Castellari.
Finally, the amount circulating today does not reflect the totality of existing currencies. “There is a portion of bitcoins that is lost. Because it is essentially decentralized, if a person loses his private key from a wallet, no one will ever be able to recover it, ”said Castellari, concluding that the lost cryptocurrencies also affect the asset’s offering.
2021 and 2017: can bitcoin be a speculative bubble?
In 2017, bitcoin first reached $ 20,000 and then plummeted shortly thereafter. At the time, they called the cryptocurrency a speculative bubble. The events of 2021 are somewhat similar, but the picture is completely different.
Differences in the cryptocurrency market
“Every other time this has happened, bitcoin has been called a bubble,” said Pimenta, arguing that, in reality, since the creation of the cryptocurrency, there have been cycles of appreciation and market correction. “For those who have seen the movement for years, this is no surprise”.
BitPreço’s CEO explains that the main difference between 2017 and 2021 lies in the maturity of the cryptocurrency. “In each of these cycles, we observe bitcoin and digital currencies maturing. Since 2017, I see much more maturity, from legislation and regulation to adoption by companies and funds, ”he said.
Each of these cycles projects bitcoin into the market and the media. So, cryptocurrency is more consolidated, since numerous companies invest in it, there is more prominence in the mainstream media and a growing portion of the population comes to know the digital currency. “What I see now is that bitcoin is more mature than ever.”
Pimenta also notes that in each of the bitcoin cycles, the maximum price goes up. However, multipliers are getting smaller. “In the first cycle, the starting price has multiplied by 100. Now, the currency is unlikely to multiply the last historical high of $ 20,000 by more than 5 times.”
However, the fall is on the horizon
As much as the cycle we live in today is unique in the history of bitcoin, a big drop is also likely to occur. Historically, after reaching its maximum price, the cryptocurrency operated in a free fall. Halving always values the asset by the basic economic rule of supply and demand.
“At some point, a correction should happen, as it has happened at all other times. I believe that towards the end of the year there should be a big drop in value. It is a slow devaluation that will drag on for several months. I can’t say that everything will be the same as previous cycles, but bitcoin’s history points to that. It is not a bubble burst, it is a market correction, ”said Pimenta.
According to Castellari, stating whether bitcoin may or may not be a speculative bubble is extremely subjective. “This is unpredictable, since the cryptocurrency has no centralization whatsoever, if big companies like Tesla decide to sell the asset, the price will plummet overnight. However, characterizing it as a bubble is very subjective ”.
How a market correction operates
Essentially, market corrections for stocks on the stock exchange is something simpler than when applied to cryptocurrencies. Assets, in general, are naturally subject to these declines.
On the stock exchange, for example, there is an average price stipulated for each share. However, this value can be affected by news or events that cause very fast valuations. So a correction is needed to return the numbers back to levels acceptable by the market.
With cryptocurrencies, because they are decentralized, all of this is much more complex, but corrections occur in a similar way. For Pimenta, this phenomenon happens to reduce the value of cryptography according to its practical functionality.
“In particular, a market correction for products and stocks is much easier to understand. But new things like cryptocurrencies generate a euphoria that makes you pay more for bitcoin than for the price that it really is worth in utility in the economic world ”. Thus, corrections are also natural for digital currencies and happen when the uproar caused by large purchases, advertisements and news ends, giving space for the market to normalize.
Cryptocurrencies and the COVID-19 pandemic
The peak of the coronavirus crisis in March put many markets in check. Bitcoin itself suffered a big drop, as did oil. However, cryptocurrencies recovered much faster compared to other sectors. The COVID-19 pandemic, in general, boosted digital currencies.
Many governments have adopted policies to inject resources into the economy to combat the crisis. In Brazil, this happened through emergency aid, for example. Pimenta sees similarities with 2008, when there was also money printing.
“It was clear that governments were increasing the circulation of money in the market to resolve a crisis. Bitcoin, like other cryptocurrencies, does not increase its quantity. The exchanges recovered their movement with all this injection of resources, but this is probably not real and should explode at some point ”, said Pimenta.
This insecurity in the face of the traditional market has given even more strength to bitcoin. Many companies and funds, anticipating the negative effects of this cash injection on the market, have started to migrate to digital assets. Thus, cryptocurrency came to be seen as a cash reserve to protect itself from inflation and devaluation of national currencies.
How far should bitcoin go?
As speculative as it may be, this question permeates the whole discussion about bitcoin. How much will the cryptocurrency appreciate? Valdiney Pimenta believes that the ceiling for the current digital currency cycle is US $ 100,000, “being conservative”. While Marco Castellari predicts that it is safe that the $ 60,000 will be exceeded, but reaffirms that the asset is unpredictable.
At the moment, bitcoin operates manipulated by the big companies that now invest in crypto. Tesla announced the purchase of $ 1.5 billion in the cryptocurrency, while MicroStrategy, an enterprise software company, has an amount equivalent to $ 3.5 billion and announced today that it will set aside an additional $ 600 million to buy the digital currency .
These institutional investors directly affect asset rises and falls. However, there are numerous external and internal factors of the bitcoin network itself that are uncontrollable. When the effects of halving cease and when the world recovers from the COVID-19 pandemic, what will happen to cryptocurrency?