Time is our best ally: Bitcoin’s 12-month trajectory towards $ 100,000

 24. November 2020      

It’s not too late to buy Bitcoin: according to OKCoin CEO, the price could reach $ 100,000 in 12 months

As I wrote back in June, the fact that Wall Street stays on the sidelines is not necessarily a bad thing for our industry. While most traditional investors are still just watching, Bitcoin’s (BTC) mainstream momentum has been growing for four months. Currently, the price of Bitcoin is hovering around $ 18,000, gradually approaching its all-time high.

Bitcoin: store of value and potential global reserve currency

When it comes to asset valuation, the first step is always to understand the fundamental economic aspects. Stocks, bonds and real estate, for example, usually derive value from the cash flows generated. Consequently, the valuation of these assets involves the projection of future flows. Commodities, on the other hand, are based more on utility, so their prices are defined by industrial supply and demand.

What is Bitcoin? This is my point of view as an owner:

Bitcoin is a solid currency and the first internet native currency in human society.
It is scarce (with a limited supply of 21 million), durable (digital), accessible (the blockchain is open 24/7), divisible (1 Bitcoin equals 100 million satoshi), verifiable (open-source Bitcoin core software) and above all resistant to censorship (encrypted).
With these superior monetary qualities combined in one asset, Bitcoin is an excellent store of value. Once the critical mass of adoption is achieved by fulfilling that function, Bitcoin has enormous potential to become a global reserve currency and universal unit of account over time.

The history of money teaches us that natural forms of money generally go through three evolutionary phases: the first as a collector’s item (speculation on scarcity), the second as an investment (store of value), the third as money (unit of account) and payment (medium of exchange).

Between 2009 and 2018, Bitcoin was in its first “collector’s item.” It was difficult to estimate demand given the changing nature of speculative trading, the scope of which far exceeded the holders (mostly cypherpunk) who believed in Bitcoin as the “solid currency of the future.” Furthermore, the Bitcoin network has survived one of the most serious divisions in the community, which led to the creation of Bitcoin Cash (BCH) in 2017.

We are now in the early days of the “investment” phase. This year has brought us several unpleasant surprises: a global pandemic, permanent uncertainty, printing of incorrigible money and, in contrast, a third successful halving for Bitcoin (as expected). For the first time since its inception, Bitcoin has appeared in the mainstream media as “digital gold” capable of protecting its owner from the risk of inflation. As more and more people start adopting Bitcoin as a long-term asset protection mechanism, a simple supply-and-demand valuation framework becomes much easier.

There are many factors that could favor the price of Bitcoin in such a framework. Considering that we are still in the initial phase of mainstream adoption, I will exclude most of them to be cautious and will only focus on a highly probable scenario in which 1% -2% of US household wealth is invested in Bitcoin. A recent report published by Fidelity actually recommends a target allocation of 5%.

According to the Federal Reserve, US household wealth reached $ 112 trillion in June 2020. Hence, 1% -2% of this figure equates to $ 1,100-2,200 billion in potential demand. On the supply side, the total BTC in circulation amounted to approximately 18.5 million. To simplify things, let’s assume that the maximum offer of 21 million is entirely for sale. By dividing the demand by the maximum offer, we get a price range between $ 56,000 and $ 112,000. Considering the current macroeconomic trends, it is not unreasonable to expect such a scenario in 2021.

If we apply the same formula to household wealth globally, which according to Credit Suisse’s ‘The Global Wealth Report 2020’ equates to $ 400 trillion, a global allocation between 1% and 2% could push the price of Bitcoin between $ 228,000 and $ 456,000. Will it happen by the end of 2021? Probably not. Could it happen in the next decade? Very likely.