By Darren Parkin
BlackRock is accumulating Bitcoin, and there’s a possibility that a spot Bitcoin ETF could get the green light by the end of the year. Those who know about Bitcoin’s scarcity and the looming supply crunch can likely predict what’s coming next.
Imagine having a time machine to consider investment opportunities across various eras. Visualise, for instance, being able to invest in the stock market in the 1940s, a decade characterised by post-war economic expansion and emerging industries. Or you might consider the appeal of investing in gold during the 1950s, a precious metal historically valued for its stability and protection against inflation. Perhaps consider the housing market in the 1970s, a period marked by significant growth in real estate.
The historical connection between gold and Bitcoin is striking. Just as gold has served as a hedge against inflation and economic uncertainty, Bitcoin has emerged as the digital age’s answer to safeguarding wealth. The explosion in popularity of Gold ETFs, which allowed easy exposure to gold’s price movements, echoes the potential impact of Bitcoin ETFs, should they receive approval.
But what, in my opinion, truly sets Bitcoin apart from its traditional counterparts? Let’s examine the asset strictly from an investment perspective (this is not financial advice, I must stress).
Bitcoin’s advantages over traditional assets are numerous. It’s verifiable in a way many conventional assets aren’t. Whereas gold transactions might be cumbersome and expensive, Bitcoin allows for the transfer of billions across the globe at a minimal cost. In the digital age, a digital store of value like Bitcoin is not only fitting but, surely, inevitable. Consider the values of traditional assets:
[NOTE: The price comparisons in this article may vary across years and data sources. Consistency in data points was challenging to achieve, so the figures presented are meant to offer general guidance and are close approximations for illustrative purposes. All amounts are in dollars to marry up with the original sources.]
Let’s deduce the essentials; a significant portion is a pure store of value. For instance, bonds primarily serve this purpose. Yet, bonds often yield returns that barely outpace inflation. Property incurs ongoing costs and lacks liquidity, and while gold is an age-old store of value, it’s cumbersome to move in bulk and difficult to trust and verify. By contrast, Bitcoin allows massive wealth to be stored as a simple phrase, immune to external seizure or debasement.
Considering Bitcoin’s unique characteristics, it is plausible to expect it to secure a substantial portion of the market in the coming years. When accounting for lost or stolen Bitcoin, the available supply is estimated to range between 15 to 17 million coins. The implications would be profound if just 20% of the wealth currently held in traditional assets were to migrate into the Bitcoin ecosystem.
If we calculate 20% of the estimated $580 trillion in traditional asset wealth flowing into the Bitcoin market cap, the result is a staggering $116 trillion. This influx of wealth, coupled with the limited supply of only 17 million coins in circulation, would have a transformative impact on the price of Bitcoin.
To determine the potential price of Bitcoin under these conditions, we can use a basic formula:
Price of 1 Bitcoin = Market Cap / Total Supply of Bitcoins
Price of 1 Bitcoin = $116 trillion (Market Cap) / 17,000,000 (Total Supply)
This calculation yields a hypothetical price of approximately $6.8 million per Bitcoin. This is only based on a 20% flow from traditional assets and does not consider any other forms of inflow or investments.
It’s important to note that this is a simplified projection, and the actual price of Bitcoin is influenced by many factors, including market sentiment, adoption rates, regulatory developments, and technological advancements. However, it underscores the significant potential Bitcoin holds as a store of value and the impact it could have on traditional finance if it were to capture a substantial share of traditional assets.
When factoring in currency debasement, these predictions could approach staggering amounts. Just on the news alone that a spot Bitcoin ETF approval was imminent, the price rose more than 12%. The current valuation hovering around £28,000 presents a potential opportunity, despite the latest pump. Again, not financial advice.
The tides of the financial world are shifting. Bitcoin’s emergence is challenging and reshaping long-standing investment narratives. In the future, a blend of digital and traditional assets is the hallmark of future investment strategies as we shift from an analogue to a digital world.
The great news is no time machine is required; you only need to study Bitcoin to see what you think it could do.
