How high will bitcoin go?

Bitcoin has finally broken through the $100,000 mark, a few hours after Federal Reserve chair Jerome Powell referred to the cryptocurrency as “digital gold“.

The surge in bitcoin’s value from $50,000 in February of this year can be attributed to several factors but the largest by far has been the US presidential election.

Former president Donald Trump’s re-election, and his recent nomination of crypto advocate Paul Atkins as the next chair of the Securities and Exchange Commission, has given hope to the digital currency landscape.

“It’s likely Bitcoin will continue to rise in value in the short-term and long-term too, following Donald Trump’s inauguration and the appointment of his cabinet, who are in favour of encouraging the wider use of cryptocurrency,” said Jake Webster, managing director of asset manager The Seventy Ninth Group.

In the past, Trump described the digital currency’s value as “based on thin air” and claimed that bitcoin was “a scam”.

Now, the former president is all in on crypto, pledging to start a bitcoin reserve and make the US the “crypto capital of the planet”, as well as even launching his own non-fungible tokens (NFTs).

Analysts agreed that bitcoin’s surge was overwhelmingly down to Trump’s victory, but it remains to be seen if the expectations around the incoming president manage to live up to expectations.

Nigel Green, CEO of Devere Group, described the $100,000 breakthrough as “inevitable”, but said that “with such a dramatic rise in a short period, it’s natural that some investors will lock in profit,” which could cause a dip in the short term.

“It is not unusual to see 20 to 40 per cent drawdowns in the bitcoin price during bull markets,” added Simon Peters, a crypto analyst at Etoro.

“With the price reaching such a significant milestone as $100,000 and it being holiday season, I wouldn’t be surprised to see a pull back from this level, as investors take some money off the table before the trend continues on.”

Webster warned that investors “should approach Bitcoin with caution”.

“We’ve seen it significantly rise and dramatically fall throughout its history,” he said.

“The issue with digital currencies, like Bitcoin, is their value is not tied to physical assets or a business, for instance. Value is often derived from the popularity and use case of the coin, and many coins have yet to find a use case.”

However, some analysts argued that the milestone instead signalled the next phase of the bull run, as the digital asset has seemed resilient to anything but significant exogenous shocks.

“At the very most, we are likely six to twelve months away from identifying the true peak of this cycle which could see an increase in volatility compared to the majority of this past year,” added Fadi Aboualfa, head of research at Copper.co.

Historically, the peak of the bitcoin bull market has formed 12-18 months after the blockchain’s ‘halving’, where bitcoins become twice as hard to mine.

With the most recent halving having occurred in April 2024, this would put the timeline for a peak at the end of next year or early 2026.

“Even with this milestone reached, we’re still reasonably early in this bull market if past years and cycles are anything to go by,” said Peters.