Will Bitcoin’s Price Tumble in 2022?

The widespread adoption of Bitcoin will be a key driver of prices in 2022.

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Bitcoin (CRYPTO:BTC) has been a massive wealth creator for long-term investors. Back in 2010, the price of one BTC token was just US$0.09. At the time of writing, it is currently priced at US$47,400, indicating cumulative gains of 47,399,900%. So, a $100 investment in Bitcoin in 2010 would be worth close to $47 million today.

In the last five years, Bitcoin has risen by over 5,000%, valuing the cryptocurrency at a market cap of US$896 billion. The cryptocurrency market has more than tripled in 2021 to US$2.2 trillion and peaked at US$3 trillion in November 2021. However, Bitcoin has underperformed the crypto market last year and gained “just” 60% in 2021.

Let’s see if Bitcoin will continue to gain momentum this year or if it will fall off a cliff in the next 12 months.

The bull case for Bitcoin

Bitcoin was the first cryptocurrency launched in 2008. It’s built on blockchain technology, which is basically a database spread across a decentralized network of computers. The blockchain network is secured by cryptography, where miners verify transactions. Bitcoin successfully created a secure network to execute electronic transactions without the need for an intermediary, making it a viable alternative to legacy payments systems.

Bitcoin’s source code ensures the maximum amount of BTC tokens in circulation is limited to 21 million. This limitation makes Bitcoin an anti-inflationary asset, and it’s now described as digital gold. So, if supply is constant, an increase in demand should translate to higher prices over time.

A report published by Fidelity also suggested that institutions are increasing exposure towards this highly disruptive asset class. Around 71% of institutional investors plan to buy cryptocurrencies in the future, while 52% already own these digital tokens.

Bitcoin enjoys a first-mover advantage and remains the largest cryptocurrency in the world. It’s also a widely held cryptocurrency among institutions. Several companies, including Tesla, Block, and MicroStrategy, hold Bitcoin on their balance sheets.

El-Salvador has recognized Bitcoin as legal tender while the introduction of BTC-focused exchange-traded funds offers investors a safer way to access the cryptocurrency. The widespread adoption of Bitcoin will act as a key driver of prices in 2022 and beyond.

The bear case for Bitcoin

Bitcoin is a first-generation blockchain network and is not as robust as peer networks such as Solana (CRYPTO:SOL), Polygon (CRYPTO:MATIC), or even Ethereum (CRYPTO:ETH). Solana and Ethereum have gained significant traction as these platforms can be used to create and execute smart contracts, allowing users to access the DeFi (decentralized finance) and NFT (non-fungible tokens) space.

There are several other blockchain networks that are faster, cheaper, and more scalable compared to Bitcoin, which might delay the acceptance of BTC as a form of payment at the global level.

Finally, the volatility associated with cryptocurrencies makes Bitcoin an ideal bet for investors with a high-risk appetite. Most digital tokens including the BTC can fluctuate wildly and often without a reason.

It will be impossible for Bitcoin to replicate historical gains. But you can still allocate a small portion of your capital towards the BTC token and outpace the broader markets over time.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Aditya Raghunath has no position in any of the stocks mentioned. The Motley Fool owns and recommends Bitcoin, Block, Inc., and Ethereum. The Motley Fool recommends Tesla.

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