Two years ago, I wrote about how hitting 10,000 wouldn’t be enough for Bitcoin in light of the asset’s fundamentals and market dynamics.
Today, bitcoin trades well above 60,000 and I’ve learned a valuable lesson about the pitfalls of being conservative when proclaiming valuation estimates out in the public.
While I’m not encouraging you to jump into the 100k-by-the-end-of-the-year options pool just yet, there are three simple reasons for optimism, even for all of us who missed the first days of trading with ProShare’s BITO.
Reason 1: Bitcoin is no longer a solution without a problem
It’s been 11 years since Laszlo Hanyecz’s 3.8 billion pizza, but Bitcoin is nowhere close to reaching peak maturity yet.
On the contrary, we’re still firmly riding the hockey stick portion of the graph with last year’s crypto adoption rates seeing a phenomenal 881% growth rate according to Chainalysis.
Bitcoin adoption has been particularly strong across Asian countries like India, Pakistan and Vietnam where recent surveys have found more than 40% of respondents holding cryptocurrency. To get an idea of how far off systemic adoption is in the West, contrast this figure with the fact that less than 10% of respondents professed owning crypto in the UK and US.
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The situation is changing in a hurry, however.
Last week we saw the first Bitcoin ETF launched by ProShares and new futures-based ETF funds can be expected from at least Invesco, VanEck, Valkyrie Digital Assets and Galaxy Digital. At the same time, countries like El Salvador have made Bitcoin legal tender and more than 80% of central banks worldwide are actively engaged with digital currencies.
On the consumer side of things Robinhood has already made crypto-investing frictionless and payment processors like Venmo are joining the party and both Google and Facebook have partially lifted their banhammers off of crypto ads over the past few months.
What we are witnessing is rapid-paced kosherization of Bitcoin and cryptocurrencies, and having BTC embedded deeper into our financial systems will have a larger impact than many of us realize.
Most importantly, we can expect to see continued growth for demand in Bitcoin across all facets of life ranging from direct payments to institutional investor portfolios, all of which will conspire to keep satoshis on an upward trajectory for years to come.
Reason 2: Bitcoin and cryptos are a unique asset class that will only grow in demand
A few years ago Charlie Munger slammed Bitcoin as ‘worthless, artificial gold’ and if you drop the first adjective Charlie would be right on the money.
Just like gold, Bitcoin provides a strong safetynet against inflation, global turmoil and any other shenanigans the market can throw out at an investor. In fact, bitcoin and it’s crypto-brethren have succeeded in straddling the fine line between speculation, gambling and non-traditional diversification far more successfully than gold ever could.
For example, during the 2012–2020 period, Bitcoin’s correlation with S&P 500, bonds, U.S. real estate, oil and emerging market currencies ranged from -0.1 to 0.03, making it an ideal tool for adding diversity to almost any portfolio.
All in all, Bitcoin beats gold handily when it comes to correlations with other defensive assets like bonds — rather well done for a worthless and artificial variant, don’t you think.
The past years have given us a taste of how our future will most likely be pockmarked by geopolitical insecurity and worsening ravages of climate change and manmade disasters. In an increasingly unstable context, Bitcoin’s unique mix of defensive prowess and speculative appeal make it more future-proof than many other asset classes today, paving the way 100k and beyond.
Reason 3: Economics 1.01
As of today, approximately 18.4 million Bitcoins out of a total of 21 million have been mined. Of these, experts estimate that 10–30% are out-of-market due to lost passwords, hardware crashes and the like.
From a systems-integrity perspective, the upcoming halvenings and eventual end of rewards-per-block is a non-event. Around the year 2140 when this is expected to happen, miners will continue running the networks (ideally on renewable energy) with transaction fees to incentivize their efforts.
The same cannot be said for the nominal price of Bitcoin, however. As anyone with a macroeconomics 1.01 course under their belt will tell you, a decrease in supply matched with a growth in demand will lead to an inevitable increase in price.
And demand is certain to grow. Even if we put systemic adoption and hedging matters aside, there are numerous untapped sources of demand ripe for picking.
One particularly potent source is retail and consumer transactions, which have lagged behind largely due to a lack of institutional backing. In the first half of 2021, Visa (and its partners BlocFi, Circle and Coinbase) had more than one billion dollars flow through their crypto-linked cards. MasterCard is also putting its bets on crypto, and we can expect its Bitcoin-linked card to become a consumer staple in the coming years.
All in all, there is good reason to believe that 60k won’t be the end of the bull-run, and while it will most certainly be a bumpy ride, things are looking good for those who are willing to buy and hold.