Editor's Note: Bill published this Private Briefing interview as part of his 2021 forecasts for his subscribers, but with Bitcoin soaring past $40,000, we asked if we could share it with everyone...
When I have a question about Bitcoin - or about cryptocurrencies of any kind - there's one person I go to... one person I trust.
I'm talking about Money Morning's David Zeiler.
And with good reason.
He was an early Bitcoin "miner" - back in 2011, when the bellwether crypto was trading at about $15 and when it was still possible for an individual investor to be a go-it-alone cryptocurrency prospector.
That "immersion" has given him a unique perspective - and an ability to make some uncanny predictions about what's next for Bitcoin.
In early 2016, when Bitcoin was trading at $450, Dave predicted - on the record - that the crypto coin could zoom to $2,000, and then go higher from there.
Much higher, he said.
Talk about predictions. Bitcoin did soar - just as Dave said. It zoomed past $19,000 in December 2017 before the crypto market nosedived.
He made correct "calls" in 2018 and again in 2019.
Then there was last year.
On Jan. 8, 2020 - so just about a year ago at this time - Bitcoin was trading at roughly $7,800. And Dave told us here that Bitcoin would zoom to more than $20,000 by the end of the year.
He was right. Again.
Given all that's happened - and since I've had some requests from my Facebook followers - I figured this would be a good time to catch up with Dave again.
Especially since he's now predicting that Bitcoin could more than triple this year to reach $100,000 by the end of 2021.
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It's become an annual event here at Private Briefing to have Dave share his cryptocurrency prediction - and to give a detailed analysis of what he sees, so, once more, I had a "virtual sit-down" with Dave just before the holiday.
Here's an edited transcript of our talk...
WPIII (Q): Let's start with the "good stuff" - right off the bat.
A year ago - at just about this time - we sat down for our annual "what's ahead for crypto this year" interviews ...
You said to me - and I quote - "Bill, I don't see any major moves in the first half of 2020, although we could get back to $10,000. A much bigger move could occur near the end of the year: That move could get us back to the previous all-time high of $20,000 - and possibly higher. I actually expect the biggest move in 2021, when I see Bitcoin rocketing to $100,000 before falling back again."
So you predicted a late 2020 move that would get us to $20,000 - and possibly higher.
And look where we are.
DZ (A): [Laughing] Yes ... look where we are.
WPIII (Q): Bitcoin is at $23,000. [Editor's note: It's surpassed $30,000 since this interview]
But let's leave the 2021 prediction for later in the talk.
What got us here... what happened this year?
DZ (A): A lot of little things and a couple of major things. First, there was the Bitcoin halving in May, which cut the supply of new bitcoins in half. Miners get a reward for each block they discover; this is where new bitcoins come from. In May, that reward got cut from 12.5 bitcoins to 6.25. The halving events are built into the code, and they happen about every four years. When I was mining briefly back in 2011, the reward was 50 bitcoins. So you can see that the supply now is way lower than it was a decade ago.
WPIII (Q): So what about demand? One thing I know you've talked about is access - widening access - where cryptocurrencies have become much easier to buy.
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DZ (A): Fresh demand is coming from several sources, Bill. Retail investors, who historically have driven most demand, got a lot of new ways to buy in 2020. That made it easier for more people to "join the party." Now you can buy Bitcoin with Square's Cash App, with Robinhood, and even with PayPal. Investors who had avoided Bitcoin because of the hoops you had to jump through to buy it are now taking advantage of these new, more convenient on-ramps. The buying from PayPal alone has been eating up more than 100% of the supply of freshly mined bitcoins.
WPIII (Q): No wonder the price has spiked. And that seems to have come along at a time when the knowledge base has broadened, too.
DZ (A): Yes, you're seeing crypto discussed more and more in traditional financial media. A few years ago, they would talk about it mostly when the price was making dramatic moves, but even then they treated it more skeptically. Over the past couple of years, we've seen outlets like CNBC, Bloomberg, and The Wall Street Journal devote more attention to crypto. And they take it much more seriously now. I think that has helped retail investors get more comfortable with buying it.
"Crypto is a multipurpose asset class - that's what makes it exceptional and valuable."
WPIII (Q): Here's an interesting question, Dave. As you know, I spent a good swath of my business journalism career watching Wall Street - and watching, reporting on, and making deep contacts within the wealth management business.
And one thing I learned is that the "Big Money" gets access to the newest/most-promising/biggest-upside opportunities first.
I mention that for a reason... you told me recently that - over the past year - a lot of billionaires have revealed their investments in Bitcoin. Now it's starting to show up in some of the media shadows.
DZ (A): That's another one of the big developments of 2020 - and another major source of demand. A lot of big-name investors started talking up Bitcoin over the past year: Paul Tudor Jones, Stanley Druckenmiller, Bill Miller. You had billionaires going on TV and talking about how they were allocating 1% or 2% or 5% of their fortunes to Bitcoin. And hand-in-hand with that we saw a huge jump in institutional buying of Bitcoin.
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The Grayscale Bitcoin Trust, which many big investors use to invest in Bitcoin, went from less than $2 billion in assets under management in January 2020 to more than $13 billion now. When you add it all up, we saw a lot of incoming money chasing fewer and fewer bitcoins. When you think about it, the price had nowhere to go but up.
"Crypto has features, such as decentralization and security, that give it value... No crypto embodies those features quite like Bitcoin."
WPIII (Q): What's the future for cryptocurrencies? Are they a speculation vehicle? A wealth builder? An off-the-grid financing vehicle?
The commercial/transactional reality seems to have lagged what the original "vision" was for cryptocurrencies.
DZ (A): The answer to the "Why Bitcoin?" question depends on who you ask.
WPIII (Q): Oh, how often I hear that answer these days...
[Both men laugh]
DZ (A): Okay, okay... I'm being funny... but I'm only "sorta/kinda" joking.
WPIII (Q): Explain...
DZ (A): Man, Bill: Ask a dozen people in crypto that question - and I'll wager that you'll likely get a dozen different answers. It's true we haven't seen people using crypto so much to buy things. But, to be honest, fiat money - the cash in your pocket - is better suited for buying everyday stuff. The one exception is when you want to make an online purchase anonymously.
"We saw a lot of incoming money chasing fewer and fewer bitcoins... the price had nowhere to go but up."
Some cryptos - like Monero and Zcash - are designed for that. And so is Bitcoin, to a lesser extent. But crypto is a multipurpose asset class - that's what makes it exceptional and valuable. To your question, yes, some people will use crypto for pure speculation, looking for a way to "get rich quick." Some are using crypto as a store of wealth, or "digital gold" - a hedge against the debasement of the dollar, the euro, and other major currencies. All the COVID-related money printing over the past year has really fed this perspective. And that's how a lot of people are using Bitcoin.
WPIII (Q): Let's talk about the "blockchain." That was a big "front and center" element of the "investment case" for cryptocurrencies a while back. It seems as if that "talking point" has receded a bit. Is that because it's not developed as fast as expected? Or has it become, say, part and parcel of - "indistinguishable" from - the coins themselves?
DZ (A): Crypto people were actually annoyed by the "blockchain not Bitcoin" mantra that we kept hearing from Wall Street and corporate America a couple of years ago. They thought they could separate the blockchain technology from cryptos like Bitcoin and Ethereum and adapt it to their own purposes.
But when they tried to create their own blockchain technology, they ended up with what amounts to privately run databases. They lacked the decentralized network verification system that makes the Bitcoin blockchain so secure. That's one reason why you don't hear about "blockchain" as much these days. You've still got companies like Microsoft Corp. (NASDAQ: MSFT) and International Business Machines Corp. (NYSE: IBM) using it for stuff like supply-chain tracking. But that's not especially sexy, so it doesn't get a lot of attention.
WPIII (Q): That actually brings me to a "context question" here... one I've posed before and bring up here again.
And I do that... well... because it comes up - without fail - in each and every talk we have.
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There's a group of "gloom and doom" prognosticators who continue to predict that cryptocurrencies will implode. Fully... and completely.
These naysayers insist this is a totally worthless market - a scam, a bubble, an illusion.
As you know, I dubbed them "The Crypto Curmudgeons" - and only partly in jest.
[Both laugh - loudly.]
DZ (A): One of your better ones, Bill.
WPIII (Q): These folks insist Bitcoin and its cryptocurrency brethren have no value.
Are they wrong? If not, what is it that these guys are just not seeing?
DZ (A): [Sighs and shakes his head] Yes, I know the folks you're talking about.
But, Bill... these people don't get it.
I mean... they really and truly don't get it.
WPIII (Q): Gee Dave... how do you really feel?
DZ (A): What they don't seem to grasp is that crypto is a new and distinct asset class.
These "Crypto Curmudgeons," as you call them, keep trying to plug crypto into one of the existing asset slots, and it doesn't fit.
WPIII (Q): And because it doesn't fit, they just want to dismiss it.
DZ (A): Exactly.
They can't make sense of it. They see that it shares characteristics of both currencies and commodities - but doesn't "fit" either category.
WPIII (Q): And it doesn't fit because crypto is a wholly new animal.
DZ (A): That's right, Bill.
And these gloom-and-doomers want to believe that - because a cryptocurrency doesn't have a physical form... and can't be seen or touched or held in the real world - it can't have value.
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But crypto has features, such as decentralization and security, that give it value. Decentralization is at the core of the DeFi trend I mentioned earlier. But no crypto embodies those features quite like Bitcoin. A person with Bitcoin can send any amount directly to another Bitcoin user anywhere in the world - no third party required. And unlike U.S. dollars, there's no central bank endlessly printing more Bitcoin, nobody causing it to lose value to inflation. The supply is fixed at 21 million, and a portion of that has already been lost. And now people are starting to use Bitcoin as a store of value. That's why people sometimes call it "digital gold." And that just adds to its appeal.
"The crypto 'snowball' that started in 2020 will just keep getting bigger and rolling faster in 2021."
Another issue people have with Bitcoin and crypto in general are the huge price run-ups and hard crashes. They call Bitcoin a "bubble" that has burst. But Bitcoin has gone through several such "bubbles" over the past 10 years, and the price always recovers to move many multiples higher. No asset bubble in history has ever done that.
You know, I thought you did a nice job explaining this in that "History of Money" piece you wrote in Private Briefing. (Note: You can go here to check that piece out or learn how to get Private Briefing.)
WPIII (Q): Thanks, Dave... that means a lot.
Okay, let's get to the "good stuff."
DZ (A): My latest prediction...
WPIII (Q): [Nodding] Your latest prediction - your forecast for Bitcoin and other cryptocurrencies ...
DZ (A): Absolutely, Bill... let's get to it.
WPIII (Q): As I noted above, you punctuated your "Bitcoin Forecast for 2020" - one that proved amazingly prescient, as we said - with an interesting postscript: You said that Bitcoin could soar to $100,000 in 2021.
So here we are... at the very beginning of the 2021. Where do you stand, vis-à-vis, what you expect for cryptocurrencies in 2021?
DZ (A): First of all, I stand by my Bitcoin prediction of $100,000 by the end of 2021. You know, the way things are going, that figure is starting to look kind of conservative. It wouldn't surprise me a bit if we end the year with Bitcoin well over $100,000. Recently we had several Wall Street types saying Bitcoin will go two or three times higher than that. Former hedge fund manager Raoul Pal, who worked at Goldman Sachs, recently made a prediction of $250,000. Then there was a leaked report from Citibank. Bill, this report was intended only for the eyes of institutional investors. And it put a December 2021 target of $318,000 on Bitcoin. That tells you something. I'm also seeing longer-range predictions from these guys that see Bitcoin going as high as $400,000 to $500,000 over the next few years. Makes $23,000 sound cheap, doesn't it?
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I'm just glad to see Wall Street come around to my way of thinking. Like you always say, Bill, we're always happy to have Wall Street follow our lead. The crypto "snowball" that started in 2020 will just keep getting bigger and rolling faster in 2021. We'll see big-time FOMO - you know, the Fear of Missing Out - driving a series of rallies throughout the year. But I also expect a lot more of Bitcoin's notorious price volatility - I think we'll have several dramatic pullbacks on the way to $100,000 and beyond.
WPIII (Q): How about other cryptocurrencies? What do you see there?
DZ (A): I think 2021 will be a very positive and active year for crypto. Ethereum is set to move to a new type of network verification called "proof of stake." Among other things, this transition will help the Ethereum network scale to handle all the stuff people are building on top of it, especially DeFi. I expect DeFi to keep growing at a rapid pace, as well.
"We're always happy to have Wall Street follow our lead."
One particular project I'll be watching in 2021 is Cardano. The project leader, Charles Hoskinson, helped create Ethereum. This project has moved forward very slowly and deliberately, but a lot of the pieces are starting to come together now. Several major upgrades are expected in rapid succession. I like it because it's a "third generation" crypto, designed from scratch to provide more elegant solutions to common crypto problems like scalability, security, and interoperability. It was up more than 400% in 2020, more than Bitcoin. I think Cardano will finally get the recognition it deserves in 2021.
WPIII (Q): How would you recommend that folks play this prediction? What should they use as their prime "investment vehicle?"
DZ (A): I would suggest people use your favorite strategy - the "Accumulate" strategy. Buy some Bitcoin now and then add to it on pullbacks. You can also use a dollar-cost averaging strategy and set up a fixed-amount buy at a regular interval. You can do this at several places that offer Bitcoin, including Coinbase and SwanBitcoin, which specializes in it. At some point, when you're up 2x, 3x, or more, you can consider cashing out an amount equal to your original investment. Then you'll be playing with "house money" no matter what happens.
I also want to emphasize that people should not go hog-wild into crypto. Only invest what you can afford to lose. I'm talking 1% to 5% of your capital. You can't forget that crypto, even Bitcoin, is still a high-risk investment.
WPIII (Q): If you're not already involved - but are seriously thinking about investing in crypto - what's the best way to get started?
DZ (A): People just starting out should stick with Bitcoin. It's the No. 1 crypto for a reason. And don't be intimidated by the high price. You don't have to buy a whole Bitcoin. It's very easy to buy fractions of a Bitcoin equal to any dollar amount. To help those getting started, I recently wrote a "How to Buy Bitcoin" guide for Money Morning - you can access it by clicking right here. There I explain what investors need to know and list all the best places for beginners to buy Bitcoin, along with the pros and cons of each one.
"Bitcoin... is the No. 1 crypto for a reason."
If buying Bitcoin directly still makes you nervous, you may have other options soon. I think 2021 is the year the SEC finally approves at least one Bitcoin ETF. That will be a much easier path for most retail investors.
WPIII (Q): As always, good stuff, Dave.
Editor's Note: Bill Patalon publishes his Private Briefing investing research three times a week, every week. Aerospace and defense, high tech, cryptocurrencies, money management strategies and tips, plus exclusive interviews with all our investing and trading experts - Bill puts it all on the table for his subscribers. Click here to learn more or subscribe...
About the Author
Before he moved into the investment-research business in 2005, William (Bill) Patalon III spent 22 years as an award-winning financial reporter, columnist, and editor. Today he is the Executive Editor and Senior Research Analyst for Money Morning at Money Map Press.