5 key Bitcoin factors to consider when new investors buy BTC in 2021
The price of Bitcoin may have peaked several years ago, but many key factors indicate that even better days are ahead.
The end of 2020 has been triggering subreddits and feeds focused on the cryptosystems of Bitcoin hodlers as the appetite for digital ingots reaches an all-time high.
The explosion has been accelerated by PayPal’s adoption of the network, along with the much sought-after seal of approval from respected figures such as Michael Saylor, Jack Dorsey and Paul Tudor Jones.
Jim Cramer bought Bitcoin Storm when the price was „far from the maximum“ at $17,000
The corresponding price appreciation and widespread awareness of people like Maisie Williams and the more recent institutional purchase of MassMutual continue to drive price and sentiment around Bitcoin (BTC).
The tide continues to rise as the dynamics of working from home drives the digital transformation, and it increasingly looks like 2021 will be an action-packed year for the next chapter in the evolution of the Bitcoin network.
Let’s take a look at some of the key areas we need to pay attention to in 2021.
Bitcoin mining valuation and gold comparison
Bitcoin mining has many fundamental similarities to gold mining; however, there are key differences to explore in the complex task of valuing the operations of Bitcoin miners. We’ll focus on Riot Blockchain as an example, who’s a Bitcoin miner from the U.S. based in Colorado.
The Winklevoss Twins: Bitcoin Market Capitalization to Surpass Gold
Riot began mining in 2017 and has recently published plans to increase its hash rate with a delivery of mining hardware scheduled for this spring of 2021. Currently, Riot has a hash rate of 1.5 exahashes per second, which represents approximately 1.11% of the total Bitcoin network hash rate of 135 EH/s.
The company mined 224 BTC, according to its third-quarter earnings released on November 9, which are at the $4.1 million in revenue baseball stadium at $18,500 per BTC.
Given the above figures, investors will ask: How can a company justify a market capitalization of $670 million with only $8 million in revenue and massive operating costs (electricity)?
Even with more than 1,000 BTCs listed on its balance sheet, which is $18.5 million at the current BTC price, the valuation is stretched thin, to say the least.
From Mom’s House to Headquarters: Bitcoin Mining is Going Industrial
This is where two considerations come into play that could justify a much higher market capitalization of Riot along with other cryptomakers, assuming that the network goes deeper into a bull market.
The expectation of future price appreciation
You don’t need to dig deep before you find a wide range of optimistic goals for Bitcoin pricing within a year. The range extends from Mike Novogratz’s estimate of $65,000 to PlanB’s $288,000 for the popular stock-to-flow model.
Meanwhile, CitiBank has recently stated USD 318,000; the Winklevoss twins have suggested USD 500,000 and Ark Investment’s CEO, Catherine Wood, seems to agree with the latter.
These target prices are the reason why the miners have held out during the 2018 downward cycle and operated at a loss at times. They expect the network to continue to exist for the foreseeable future. The miners also know that there’s the power to serve as validators of network transactions, and the continued increase in the network’s hash rate shows that Bitcoin is becoming safer and more competitive with each passing day.
Those miserable 224 BTCs that Riot undermined in Q3 would expand their revenue stream to a greater and more ambiguous number if the upper limit of Bitcoin’s price isn’t defined. This means that Riot’s profit estimate wouldn’t be consolidated if BTC experiences another parabolic surge, even if the current valuation doesn’t make sense for the „high cost“ of mining a Bitcoin and the amount of BTC mined.
Lack of mining hardware
The worrying aspects of getting behind a Bitcoin miner are the low barrier of entry and the highly efficient and competitive test network that Michael Saylor described as a nest of „cyber hornets.
The $2.3 billion in Bitcoin withdrawn from the exchanges dwarfs the amount of new BTC mined