KEY POINTS

  • U.S. Global Investors CEO Frank Holmes says the Bitcoin halving in May contributed to a BTC supply shock
  • Large institutions are buying all the new Bitcoin supply
  • Decentralized Finance is a key driver for Ethereum

Frank Holmes, chief executive and chief investment officer at U.S. Global Investors, predicted an increase in the prices of Bitcoin and Ethereum — the first and second largest cryptocurrencies — by 2021.

In an interview with gold-centric outlet Kitco, Holmes said the two cryptocurrencies will play well next year because of higher adoption. The key value drivers are different for the two, he said.

Bitcoin is increasing in value because of the number of people adopting it, as evidenced by the growing number of active BTC addresses.

“The number of wallets, people that are embracing Bitcoin, that’s been growing for the past three years. Nice steady growth,” he told Kitco. 

Holmes, however, does not think Bitcoin is rising because it is a digital version of gold. He said he believes it’s simply because of the Bitcoin halving back in May that serves as another key driver for its price. He argued that if that kind of supply shock happens to gold, the price would also increase drastically.

“If tomorrow, if all the gold mines in the world said we’re going to cut supply by 50%, I can assure you gold will be at $10,000,” he added.

After the Bitcoin halving in May, the number of new Bitcoins issued per day was cut to just 900 BTC. The decrease in supply was coupled with large institutions PayPal and Square buying the entirety of these 900 BTC every day.

Basic economic principles have revealed that the only way for a scarce supply and an increased demand to equilibrate is at a higher price. Since the Bitcoin halving, the cryptocurrency’s price jumped from $9,000 to nearly $19,000 in just six months. 

As for Ethereum, Holmes said the latest developments in decentralized finance is a key driver for the second-largest cryptocurrency. The total locked value in decentralized finance (DeFi) is now worth $14.6 billion, Cointelegraph reported. 

Finally, Holmes said that for the supply side of Ethereum, the transition to Ethereum 2.0 is the key driver. In Ethereum 2.0, validators will “stake” their ETH to confirm transactions instead of miners doing that in Ethereum 1.0.

“So what happens here is that the supply is shrinking, and the demand is growing, and DeFi continues to grow, so I think Ethereum is actually going to trade much higher,” he said.

Bitcoin is the best known virtual currency, but it may face a real problem next week Bitcoin is the best known virtual currency, but it may face a real problem next week Photo: AFP / INA FASSBENDER bitcoin-2007769_1920 Bitcoin Photo: Bitcoin