The Case for Bitcoin Hitting $100,000
Given the current market conditions and Bitcoin hitting a price of $20,000, it can be hard to understand why anyone should be bullish that Bitcoin may one day be worth $100,000. The intention of this research is to provide some analysis to support the growth of Bitcoin price over a long-term period of time. Investors should be aware of the high volatility and risk associated with Bitcoin investing. While short term volatility may have a significant impact on the price of Bitcoin, the trends and analysis identified below are focused on a long-term view of Bitcoin.
Gold vs Bitcoin: The Market Capitalization Approach
Today, the market capitalization of gold is around $11.6 trillion dollars, a significantly larger amount than the entire market cap of cryptocurrency. At it’s peak, Bitcoin had a market cap of $1.3 trillion dollars and a price of $67,500. It should be noted that for Bitcoin to hit $100,000 based on current supply the market cap would only need to be $1.9 trillion dollars. If Bitcoin were only to match 20% of the market cap of gold it would stand to be $2.4 trillion dollars, with an approximate market price of $124,000 a Bitcoin.
While some may find it unfair to compare gold to Bitcoin given that gold has intrinsic value based on its use cases including smartphones and jewelry, it should be noted that the main use case of gold being a medium of exchange is what Bitcoin seeks to replace. Gold is inherently not simple to transport in large quantities and it creates significant delays for people located across different areas. The power of Bitcoin includes its ability to be quick, efficient, and secure when moving value across the blockchain and this has held true since the existence of the asset.
Adoption Curves
Bitcoin is still a nascent asset class in its early innings which offers the protocol significant growth opportunities in both users and use cases. Due to the increased connectivity of humans, technology adoption and user adoption curves for prominent technology has increased significantly. If Bitcoin follows a traditional adoption curve, known as an S Curve1, it has significant runway to grow over the next decade.
Today we are likely in the early adopters or early majority phase, but it is impossible to specifically pinpoint where Bitcoin is currently at on an adoption curve. Support for this statement comes from a recent study which suggests that up to 16% of Americans have either traded in, invested, or otherwise used cryptocurrency2. While the United States tends to have a large growth in crypto users, globally there are significant gaps in Bitcoin growth due to regulatory laws that prevent citizens from owning Bitcoin. In the long-term, Viridi Funds expects more citizens globally to participate in the Bitcoin ecosystem over the next few years.
Given the importance of network effects and how they can influence adoption and price, one way to look at future price can be seen in a report Fidelity created3. Since Bitcoin does not have traditional cash flows, creative methods must be used to create a valuation. Their report focused on Bitcoin user addresses growing and modeling it against other trends we have seen including internet and cell phone adoption. If Bitcoin addresses continues to grow at even half the adoption rate of the internet, Fidelity estimates that Bitcoin will be over $100,000 by the end of the decade.
Despite the price draw-down we have seen in the past few months, Bitcoin development continues to grow and user count is increasing. Today, use cases of Bitcoin are limited and users do not have the easiest on-ramp experience to the technology. However, Viridi Funds believes that several events in the past year have proven that countries and companies are investing in a Bitcoin future. Major integrations have started to occur with prominent companies like Twitter which now allow users to tip content creators4 with Bitcoin. Additionally, countries have started to utilize Bitcoin including El Salvador, which has claimed that Bitcoin can be used as a legal tender within the country.
Financial Utility of Bitcoin
For the first time in 2021, a pension fund allocated $25 million dollars to cryptocurrencies. As time passes, many more financial firms and investment managers will look to allocate towards cryptocurrency and specifically Bitcoin. The growth in demand from clients will start to create a constant buying pressure on digital assets and continue to increase liquidity within the space. While some smaller cryptocurrencies suffer from liquidity, Bitcoin trading volume consistently surpasses $20 billion dollars per day and Bitcoin dominance continues to remain above 40%5.
Additionally, institutional adoption of Bitcoin continues to grow with announcements from Goldman Sachs about allowing Bitcoin backed loans6. As Bitcoin becomes more accepted, companies with large digital asset balance sheets will continue to seek out opportunities to utilize their Bitcoin. In the Bitcoin mining space, Marathon Digital secured a line of credit backed by Bitcoin7 and Viridi Funds believes that this trend of Bitcoin being used as collateral will continue.
Viridi Research
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1. https://www.stratechi.com/adoption-curves/
3. https://www.fidelitydigitalassets.com/sites/default/files/documents/valuing-bitcoin-report.pdf
4. https://blog.twitter.com/en_us/topics/product/2021/bringing-tips-to-everyone
