Bitcoin US$100,000 could happen sooner than most investors think

 

I’ll never forget when bitcoin rose above US$1,000. It was the winter of 2013 and my wife was giving birth to our first child at the hospital. During lulls in the action, I secretly pulled out my phone to check bitcoin’s price.

A lot has changed in five years.

Our daughter can now write her name in crayon. And after peaking near US$20,000 in December 2017, bitcoin today trades for around US$3,600.

But I believe it could go up to US$100,000 in as little as two years.

Here’s how…

Bitcoin as “gold 2.0”

Coming out of the global economic crisis in 2009, I fell in love with bitcoin because it has a fixed supply. There will only ever be 21 million bitcoin.

Why is that so important?

While the U.S. dollar can be printed on a whim, bitcoin’s limited quantity makes it inflation-proof – just like gold. But it’s easier to hide, transport and spend than gold. That’s why I believe it will steal investment dollars from gold.

By some estimates, more than US$7 trillion worth of gold has been mined. Some US$3 trillion of that is locked away in safes or held by central banks. So what would happen if 1 percent of that was put toward bitcoin?

Bitcoin’s market cap would grow by US$30 billion.

And as bitcoin’s market cap grows, so does the price of each coin. To hit US$100,000, though, bitcoin needs a much bigger market cap than the current US$70 billion… one that’s closer to US$900 billion.

The great supply myth

Right now, there are technically 17.5 million bitcoins in existence.

But guess what?

There aren’t actually 17.5 million bitcoin.

That’s because a lot of bitcoin are lost forever. Research from Chainalysis says nearly 4 million bitcoin are gone forever. The bitcoin owners might have died… or their hard drives crashed… or they accidentally threw away their private keys. There’s no recovering from that.

Another 2 million bitcoin were stolen. Many of these coins are now stuck in limbo since their origins are trackable and tainted.

And 2.5 million bitcoin are owned by the most fanatic crypto backers. They call themselves the “hold on for dear life” (that’s HODL in bitcoin lingo) crowd. They have no intention of ever selling.

Put it all together, and you have 8.5 million bitcoin that are out of circulation.

Why does that matter?

Because that missing supply means bitcoin is even scarcer than people think. That skews bitcoin’s market cap, making it look larger than it is.

See, crypto pricing sites use bitcoin’s total supply to calculate market cap. That calculation is exaggerated if the total supply is unavailable.

So bitcoin could hit US$100,000 per coin with a market cap of US$895 billion vs. the US$1.7 trillion it’d appear to need on paper:

US$895 billion is a massive amount of capital. But there are plenty of places where bitcoin can siphon away market share. The stock market is the most obvious.

The 60 biggest stock exchanges are worth a combined US$69 trillion. And stock investors have already proven they want ways to invest in cryptocurrency.

Every day, traders buy stock in the Bitcoin Investment Trust (GBTC). Each share of GBTC represents fractional ownership in bitcoin. Investors can buy and sell it as simply as they’d buy or sell shares of Apple or Google. Demand for the product is so high, though, investors are paying a 20 percent premium to buy GBTC (which is why we call it the worst way to buy bitcoin).

Fortunately, the minds behind the New York Stock Exchange are rushing to make buying bitcoin easier. Soon, they’ll launch a bitcoin exchange called Bakkt that will make buying crypto as simple and secure as buying shares in Apple.

I’m excited about the exchange. But I’m even more excited that the minds behind the NYSE are blessing the industry. If they think bitcoin’s here to stay, other investors will agree. And bitcoin ETFs will likely follow.

With ETFs, everyone who has a brokerage account will suddenly be able to invest in bitcoin (likely at a much better premium than the one offered by GBTC).

In short, Bakkt’s launch could help bitcoin capture an impressive share of global stock investments. If it gets just 1 percent of stock investments, bitcoin’s market cap would surge by US$690 billion.

Bitcoin for offshore banking

U.S. corporations don’t pay taxes on overseas income. Not until they bring that money home, at least. So a lot of companies leave that money offshore. It’s called “tax arbitrage”. This keeps some US$3 trillion in foreign banks.

But offshore banking is also used to protect corporate assets.

Let me explain…

A multinational company like Microsoft could keep all its assets in a New York bank. That would create a huge risk, though.

Why?

Because a judge could freeze its account. One lawsuit is all it would take. Overnight, the company wouldn’t be able to meet payroll. And that would happen beforeMicrosoft could defend itself in court.

That’s why Microsoft keeps money offshore. It takes years to freeze overseas assets. And during that time, Microsoft would have its day in court.

Multinational companies do this all the time. Coupled with tax arbitrage, offshore banking is a roughly US$25 trillion market.

But bitcoin has many advantages over offshore banking. It’s unseizable. And you can move billions of dollars’ worth with a few taps of your phone.

I know of one investor whose company has poured US$200 million into the crypto space. He says offshore banking is bitcoin’s single biggest use case. And he thinks bitcoin could capture US$10 trillion in offshore banking funds.

Let’s assume bitcoin captures just 1 percent of the US$25 trillion market, though. That’s another US$250 billion added to the bitcoin pie.

Putting it all together

If bitcoin can capture 1 percent of the gold, stock and offshore banking sectors, its market cap would be US$970 billion.

With a market cap of US$970 billion (which I believe is conservative), the 8.9 million available bitcoin would trade at US$108,440 each.

So ignore the mainstream media. US$100,000 bitcoin could happen sooner than most investors think.

Good investing,

Fred Marion

 

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