Bitcoin’s Strong 2020 Could Bring A Bumpy 2021

Bitcoin proved its store-of-value narrative in 2020, but its growth could bring increased regulatory scrutiny in 2021.

2020 was unforgettable, especially for Bitcoin. To help memorialize this year for our readers, we asked our network of contributors to reflect on Bitcoin’s price action, technological development, community growth and more in 2020, and to reflect on what all of this might mean for 2021. These writers responded with a collection of thoughtful and thought-provoking articles. Click here to read all of the stories from our End Of Year 2020 Series.

What a year.

Bitcoiners began 2020 in a hopeful mood. After a quiet two-year bear market, with flat price action but notable technical advancements on the Lightning Network and Taproot, we were looking forward to “The Halvening” in May. We hoped that this event would act as a precursor to another bull run amid a robust global economy that indicated we had nothing but good times ahead. The rocket was fueled, when moon?

However, 2020 was a year when almost nothing went according to plan, with everyone’s lives disrupted by the unexpected arrival of a new virus from China, coupled with hamfisted and economically devastating government reactions to that virus as it quickly spread worldwide. We now come to the end of 2020 with a growing COVID-19 death count and a growing economic disaster looming on the horizon.

But despite all of the misery and trepidation, there is reason for hope and faith that we can recover and rebuild. There is opportunity amid the chaos.

This is good for Bitcoin.

Born In Chaos, Grown In Chaos

Bitcoin is no stranger to economic upheavals. It was born in the chaos of 2009, during the aftermath of the 2008 financial crisis that served as such an inspiration to Satoshi Nakamoto that he immortalized it in the Bitcoin genesis block.

Source: Screenshot from BTC-Explorer

2020 seems destined to mark the dawn of another financial crisis. But this time, Bitcoin is ready to perform. Setting aside the substantial health and medical impacts of COVID-19, the related global financial and economic chaos that was spun up in response has created a perfect storm for Bitcoin to thrive in:

  • A Bitcoin supply halving event in May
  • COVID-19 financial relief efforts and global fiat quantitative easing efforts, on steroids (money printer go brrr…)
  • Digital gold narrative taking hold
  • Physical cash killed off (COVID-19 fears = touchless / credit cards / digital payments only)

And then, for a cherry on top, we had what may prove to be the 2020 equivalent of the famous 2008 genesis block headline:

Quite the headline, commemorated and immortalized by being mined into Bitcoin block #659,678:

Source: https://explorer.btc21.org/block-height/659678

This perfect storm of events seems to have caught the attention of big money. With a new wave of large institutional investors driven by a desire to protect their wealth in turbulent times, and realizing bitcoin had grown into a viable alternative to gold or bonds, bitcoin’s “store-of-value” narrative suddenly took center stage. 

One after another, each new public announcement of a traditional large investor buying bitcoin fueled this narrative, which in turn attracted more attention. As opposed to the 2016/’17 bull run, which was driven mostly by retail speculation, we now seem poised to embark on a new bull run fueled primarily by institutional investment.

Price speculation aside, bitcoin is evolving as money. As we look back on 2020, we may come to view it as the year when bitcoin truly began to be viewed more broadly as a store of value. Recall the theory of money’s evolution, which states that for something to become money, it moves through stages:

  1. Collectible
  2. Store of value
  3. Medium of exchange
  4. Unit of account

2020 brought us unprecedented levels of unwanted chaos. But the silver lining may be that it called more attention to the importance of sound money, which in turn may have just dramatically accelerated bitcoin’s evolution as money, moving it from “collectible” to “store of value” in the minds of institutional investors. 

As we end 2020 and enter 2021 with current downward economic health trends likely to continue, bitcoin stands poised to capture more and more of the world’s wealth as a true, global store-of-value asset. And the stronger bitcoin becomes as a store of value, the more likely it is to one day become a medium of exchange and then a unit of account.

Entering The Regulatory Climate

But it won’t be easy. With all of this increased attention from institutional investors comes the attention of government regulators. We need to be ready for a new wave of negative consequences arriving in the wake of Bitcoin’s increased visibility and acceptance as a store of value. The long-term future looks bright for Bitcoin, but the near-term road ahead looks like it might get bumpy.

See Also
As big money investors and major institutions allocated to bitcoin in 2020, the asset became largely derisked for the future.

Already we’re seeing increased interest from the state in the form of renewed calls for regulation, and in the U.S. there are fresh new rumors of increased KYC/AML requirements. Battle lines are forming…

And at a broader level, we’re already seeing musings from leaders in 

Canada about how best to control the savings of citizens, and in Argentina there are outright attacks on individual wealth in the form of new taxes to pay for the economic missteps of 2020

Canada and Argentina may prove to be early warnings for other regions around the world. 

Governments may love printing money, but that doesn’t mean they won’t continue to seek to extract wealth from their citizens by taxing them. 2021 promises to bring renewed hope in the form of COVID-19 vaccines, but the economic disruptions that began in 2020 may take far longer to settle.

Throughout it all, Bitcoin will continue to operate worldwide, providing the world with the most rock-solid monetary policy ever invented. More and more people will turn to Bitcoin as a way to protect and preserve their wealth. And I’m confident that at the end of 2021, we’ll once again look back and say “this was good for Bitcoin.”

This is a guest post by Brian Lockhart. Opinions expressed are entirely their own and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.