Cryptocurrencies exploded in 2021, but Bitcoin’s (BTC-USD) pullback at year-end left many investors unsure of the same returns over the new year.

Driven by demand for non-fungible tokens (NFT) and decentralized finance (DeFi), Ethereum (ETH-USD) and smaller cryptocurrencies ended up stealing the limelight from Bitcoin. Its market capitalization, currently below 40%, is the second lowest on record according to Trading View The data.

Trading around $ 47,300, Bitcoin is down 8% from last week and 31% below the all-time high it reached in November, near $ 69,000. While hopes for Bitcoin’s $ 100,000 have been dashed in the near term, the bulls remain unfazed – and some aren’t afraid to double their predictions.

“In the short term, there may be some volatility,” CryptosRus George Tung told Yahoo Finance on Monday. “In the long run, inflation is going to be a persistent problem, and bitcoin is considered the best hedge against inflation at this point.”

Samson Mow, chief strategy officer for software company Bitcoin Blockstream, was among those who predicted a transition to six-figure territory. He insists that the high water line is still a real possibility.

“We’ll see $ 100,000 in the first half of the year,” Mow told Yahoo Finance.

He admitted that in the short term, Bitcoin will continue to function as a risk sensitive asset, fluctuating based on central banks and government policy, as well as broader changes within the stock market. But “over a fairly long time horizon, [Bitcoin] does its own thing, ”Mow added.

Yields and volcanoes

His comments follow a similar prediction by President of El Salvador-turned-Bitcoin evangelist Nayib Bukele, who made a similar appeal over the weekend. Bukele predicted that two more countries will adopt Bitcoin as legal tender this year.

Recently, Blockstream and El Salvador grabbed the headlines, after Bukele and Mow unveiled a partnership to offer “volcanic bonds.”

Half of this billion dollar sovereign debt supply will be used to finance “Bitcoin City”, an economic development project located in the south of the country that would be a tax haven, which will also harvest geothermal energy from a volcano. nearby to mine Bitcoin.

Among other amenities, Mow said a “zero tax on everything” development zone would turn El Salvador into “Latin America’s Singapore.”

Although the bond is not yet available, Mow said Blockstream is working with a number of brokers.

The other half of this 10-year bond offering denominated in US dollars will be converted into Bitcoin. The 10-year bond, which matures in 2032, carries a coupon of 6.5%. While Mow admitted that this new sovereign security is much more popular with Bitcoin investors than the general public, he suggested that “yield hungry” institutions would buy the bonds.

El Salvador’s bond offering follows a June warning from the International Monetary Fund (IMF) that making Bitcoin legal tender exposed the country to significant volatility risks. Yet like Bukele, Mow hinted that by 2022 other countries – especially those involved in mining Bitcoin – would follow El Salvador’s decision to make it legal tender.

“For other countries, [Bitcoin] mining at the national utility level is the first step, ”Mow added.

Bitcoin mining operations attempt to generate income by acquiring Bitcoin at below market rates. Individual hobbyists and businesses alike do this by contributing to the computing power of the token’s decentralized payment network. Known as Proof of Work (POW), the system has never been hacked, but its high energy has angered climate activists.

As the Chinese government banned cryptocurrency mining in June 2021, the industry has resurfaced in other countries, including Canada, Iran, Germany, Malaysia, Russia, and the States. United, according to research compiled by the Cambridge Bitcoin Electricity Consumption Index (CBECI).

“Huge consequences”

How Bitcoin is being used and who is mining it can be followed, but the process is not perfect. Asset payment rails allow observers to follow the flow of funds from different wallet addresses. And figuring out who owns a particular wallet address – whether it’s a sovereign nation, a company, or an individual – is more of an art than a science.

A recent article published by the National Bureau of Economic Research (NBER) shed light on who exactly owns the Bitcoin tokens. He revealed that individual holdings are “highly concentrated,” with the top 1,000 investors controlling 3 million, or roughly 20%, of all Bitcoin in circulation.

Antoinette Schoar, an MIT economist and one of the authors of the article, told Yahoo Finance that this level of focus undermines one of cryptocurrency’s key promises: democratizing finance.

“We know that just by selling and buying any of these people can create massive amounts of volatility in Bitcoin, which as we’ve seen has huge consequences,” Schoar said.

However, some Bitcoin investors dispute these findings – even though analysis from blockchain analysis firm Glassnode found that the growing number of “whales” is indicative of institutional interest in crypto.

David Hollerith covers cryptocurrency for Yahoo Finance. Follow it @dshollers.

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