I wrote in June that keeping Wall Street on the sidelines isn’t necessarily bad for our industry. While most traditional investors continue to watch, the momentum in the mainstream world of Bitcoin (BTC) has increased over the past four months. The price of Bitcoin is currently hovering around $ 18,000 and is steadily approaching its all-time high.
Bitcoin is a store of value and a potential global reserve currency
When we talk about valuing assets, the first step is always to understand fundamental economics. For example, stocks, bonds, and real estate generally derive their value from generating cash flows. The valuation of these assets therefore implies the forecast of future cash flows. Commodities, on the other hand, are more geared towards utility companies, so their prices are anchored by industrial supply and demand.
In order to, What is bitcoin This is my opinion as a headline:
- Bitcoin is solid money and the first indigenous internet money in human society.
- Is scarce (with a fixed offer of 21 million), Long lasting (Digital), accessible (The blockchain works around the clock), divisible (1 bitcoin equals 100 million satoshis), verifiable (Bitcoin core is open source) and above all censorship resistant (encrypted).
- With these superior monetary properties in a single asset, Bitcoin is a great store of value. Once bitcoin reaches a critical mass of acceptance as a store of value, it has enormous potential to become a global reserve currency and unit of account over time.
The history of money shows us that natural forms of money generally go through three phases of evolution – first as collectibles (speculation about scarcity), second as investment (store of value), third as money (unit of account) and payment (medium of exchange).
Between 2009 and 2018, Bitcoin was in its first “collector” phase. It was difficult to estimate demand as speculative trading was volatile and its extent exceeded that of the owners (mostly programmers) who believed in Bitcoin as “solid money of the future”.. The Bitcoin network also survived one of its most serious community divisions, which led to the creation of Bitcoin Cash (BCH) in 2017.
We are now in the early stages of the “investment” phase. This year has brought us a global pandemic, ongoing uncertainty, unrestrained money pressures and, in contrast, a third successful Bitcoin halving (as expected). For the first time since its inception, Bitcoin has entered the mainstream media as “digital gold” to hedge the risk of inflation. The more people use Bitcoin as a long-term mechanism for maintaining prosperity, the simpler a simple framework for assessing supply and demand becomes.
There are many factors that could increase the price of Bitcoin within such a framework. Since we are still in the early stages of adoption in the mainstream world, I will put most of them aside as conservative and just focus on one very likely scenario where 1% -2% of the household wealth of the US target Bitcoin, while the latest Fidelity report actually recommends a 5% allocation as a target.
According to the Federal Reserve, U.S. household wealth reached $ 112 trillion in June 2020. So 1% to 2% of that would be $ 1.1 to $ 2.2 trillion. in potential demand. On the supply side, around 18.5 million BTC are currently in circulation. For the sake of simplicity, let’s assume that the maximum bid of 21 million is for sale. The demand divided by the maximum supply gives a price range of 56,000 to 112,000 US dollars. Given the current macroeconomic trends, it’s not too crazy to expect this to happen in 2021.
If we apply this calculation to global family wealth of US $ 400 trillion, a global allocation of 1% to 2% could push the price of Bitcoin to between US $ 228,000 and US $ 456,000, according to Credit Suisse’s The Global Wealth Report 2020. Will this happen in 2021? Probably not. Can it happen in the next decade? It is very possible.
What could go wrong?
It is advisable to play the devil’s advocate and also evaluate the risks of the disadvantages. Let’s look at the main risks that can cause a Bitcoin lock to fail.
Protocol risk. The greatest risk always comes from within. Bitcoin has inherent value only because it exhibits the unique properties of “healthy money”: scarce, permanent, accessible, shareable, verifiable and censorship-resistant. If any of these properties are compromised, the very foundations of your investment case will be undermined. The risks of this protocol were high in the early years. After two large and controversial forks and three successful halves, the risks of the protocol now seem to be contained.
Political Risk. With Bitcoin positioned as the future of money, sovereign governments can ban it for fear of the threat from fiat currencies. Such bans already existed in several countries. But still, Given the geopolitical inhomogeneity and the growing momentum of Bitcoin in the mainstream world, the risk that the cryptocurrency will be banned from existing holdings is decreasing every day.
Adoption risk. This is a time risk. It is entirely possible that Bitcoin will take much longer than expected to enter the mainstream world. However, the unique quality of Bitcoin will speak for itself over time.
The Bitcoin price chart between 2017 and 2018 looked very much like a bubble. But stillIf we look at the full history of Bitcoin trading, there is a definite upward trend, along with an increasing number of addresses owned by assets as well as the growing processing power of the network. The increasing average hash rate of the Bitcoin network represents the increasing level of security that one would want to see in a network where people’s wealth is stored.
The on-chain analysis also shows that the active addresses are not yet close to the January 2018 level. Even if the price of Bitcoin approaches its all-time high. It may be on the bullish side of the 12 month bitcoin price history, but I really believe that time will be our best friend.
This article does not contain any investment recommendations or recommendations. Every investment and trading step is associated with risks. Readers should do their own research in making their decision.
The viewpoints, thoughts, and opinions expressed herein are those of the author alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.