As 2021 draws to a close, some are disappointed with Bitcoin's potential closing price of the year. Others predicted that its price would explode to $100K; few even claimed $300,000 in Q4. At the time of this writing, Bitcoin's market price is floating around $46K-$50K per coin, significantly lower than its all-time high of $69,000 from earlier in the year.
That worry is mistaking the trees for the forest. Just last year, the asset was priced at around $8,000. But besides that point, when you look at the significant developments that Bitcoin experienced in 2021, the case for Bitcoin's future remains positive. Let's take a look back:
Bitcoin Fully Recovers From China Mining Ban
The most important event for Bitcoin in 2021 was its recovery after a brutal crackdown from China. After the nation stepped up the enforcement of its Bitcoin mining ban in July 2021, Bitcoin's hash rate (the total combined computational power used to mine and process transactions on the blockchain) was cut nearly in half. Some feared that it would take years for Bitcoin's network to recover from such a shake-up, but it took just a few months. According to CNBC, the bitcoin network "has completely pared back those losses, up about 113% in five months."
What was called the "Great Mining Migration," many bitcoin mining companies migrated to more regulatory-friendly locations such as the United States, with Texas in particular.
This rapid comeback from a nation-state attack was an incredible achievement and a major milestone for Bitcoin's 13+ years of operating resiliency.
Institutional Adoption of Bitcoin
In 2021, we saw groundbreaking adoption for Bitcoin. Tesla added $1.5 billion worth of Bitcoin to its balance sheets. Microstrategy obtained 121,044 BTC to its holdings. According to its CEO, Michael Saylor, he describes his investment as such:
"Bitcoin is a bank in cyberspace, run by incorruptible software, offering a global, affordable, simple, & secure savings account to billions of people that don't have the option or desire to run their own hedge fund."
Banking institutions opened up their exposure to Bitcoin as well. Morgan Stanley became the first large US bank to offer access to bitcoin funds for wealthy clients. Fidelity's Canadian division launched a Bitcoin Spot ETF, where investors can "own units of the ETF, which in turn owns physical bitcoin. The price of units will go up and down directly in relation to the price of bitcoin."
While there is only a Bitcoin futures ETF in the United States, it is only a matter of time until a spot ETF is approved in the United States. For now, the institutional adoption of bitcoin in 2021 proves that BTC is becoming a mainstream asset class.
Taproot Update and the Lightning Network's Explosion
There was significant progress under the hood for Bitcoin. We saw the activation of Bitcoin's Taproot upgrade, which increases transaction privacy, efficiency and unlocks more potential for Bitcoin's interaction with smart contracts.
Bitcoin also saw explosive growth in its Lightning Network, a layer-two system that allows for much faster and cheaper bitcoin transactions. Jack Dorsey, founder and former CEO of Twitter, launched a developer kit for software programs to better integrate Bitcoin's lightning network. Each of these points presents healthier growth for Bitcoin's long-term viability.
El Salvador Makes Bitcoin Legal Tender
On September 7th, 2021, El Salvador became the first nation-state to accept Bitcoin as legal currency. While not a country with a large population, this is still a significant development. The nation will likely experience early-adopter pains by being the first to take on such a method. However, international companies such as McDonald's are being exposed to bitcoin through El Salvador and its use for commerce.
In the long term, Bitcoin's characteristics make a potential case that it could become a global savings account for citizens, corporations, and nations. Then, countries will offer layer-two financial systems in their fiat stablecoins (digital dollar, digital euro, digital yuan, etc) that will act as a checking account for daily transactions and regulations.
Bitcoin is the greatest financial technology ever created in history. This parallel system of bitcoin as the base layer with all other currencies on top as layer-two could be the rules-based monetary system that could lead to globally sound money.
As for the short-tern of 2022, who knows? Enjoy the ride. Happy New Year!
This article, along with all content and opinions from BTC Examiner, is for educational purposes only and is not financial advice. Please reach out to your financial advisor before making any investment.