For many critics, the current bitcoins (CRYPTO: BTC) price over $ 35,000 is already too high. They tend to point to the lack of actual use cases and applications for the Bitcoin network as proof that the system is little more than a Ponzi scheme.
But the reality is that the crypto asset is already widely used today as a store of value, and this underlying utility of bitcoin could potentially increase its price to $ 1 million per coin.
Take out savings from inflationary currencies
Bitcoin is often referred to as âdigital gold,â but the situation is more complex. Gold has historically functioned as a preferred store of value from a monetary perspective, but many other assets have also acted as alternative stores of value under the current standard of fiat money.
When a currency like the U.S. dollar is inflationary, people often look for alternative investments – such as traditional stocks, real estate, and government bonds – to prevent their savings from depreciating. Cryptocurrencies are now on this list of alternative investments, and they may even disrupt some of these other assets.
Reach $ 1 million
While there are currently 6.25 new bitcoins issued by miners roughly every ten minutes, the total supply will be capped at 21 million. This means that a $ 1 million bitcoin price tag would equate to a total supply valuation of $ 21 trillion (once all the coins are mined, ignoring the millions of coins that have likely been lost forever) .
Is this assessment realistic? Let’s take a look at some of the markets bitcoin could disrupt as a store of value.
The size of the global bond market was recently estimated at $ 119 trillion by the Securities Industry and Financial Markets Association (SIFMA). At the same time, the yields on many of these bonds are at or near historic lows. In fact, $ 18 trillion of these bonds have negative yields. It is not a crazy thought. In the current state of the bond market, Ray Dalio, chief investment officer of Bridgewater Associates, recently said he personally prefers owning bitcoins over bonds.
Imagine, for example, that holders of 10% of the global bond market ($ 11.9 trillion) wish to sell their assets for bitcoin. They can’t, at least not at current prices, as there is currently less than $ 1,000 billion worth of bitcoin in existence and only a subset of the total bitcoin supply is available for sale at any given price. In other words, bondholders couldn’t buy that amount of bitcoin, meaning the price would have to rise massively to absorb buy orders. It is a simple case of supply and demand.
Or imagine that a quarter of the gold market has switched to bitcoin. That would equate to an additional $ 3 trillion in buying pressure. Suppose 2% of the roughly $ 300 trillion held in the global stock and real estate markets is transferred to bitcoin, that’s another $ 6 trillion. You see what I’m saying here. We envision a hypothetical buying pressure of $ 20.9 trillion in these four markets (bonds, gold, stocks and real estate). The upside opportunity is potentially exponential.
Keep in mind that not all coins are for sale, which means the total market value of bitcoin would be well over $ 20.9 trillion if all that money were to be transferred into the crypto asset. Some estimates place the effect of new buy orders on bitcoin’s market cap at 25 times the value of the buy, so from that perspective, $ 1 million seems pretty conservative. While this buying pressure certainly won’t happen tomorrow, bitcoin is sure to benefit from the volatile global markets and uncertainty as an exciting new asset class.
This article represents the opinion of the author, who may disagree with the âofficialâ recommendation position of a premium Motley Fool consulting service. We are heterogeneous! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.