Can Bitcoin reach $100,000?
Bitcoin has once again started the next major bull run towards its peak price of $20K. In the past decade, the top cryptocurrency has gone through several major bear and bull market cycles. Each major cycle has increased at least 10,000% from relative market lows to relative peaks.
The last major rally dubbed the “ICO boom” reached the highest price of $20,000 in December 2017 before crashing more than 87% in early 2019.
Naturally, the question is how high will Bitcoin go next?
Bloomberg Intelligence analyst Mike McGlone reasons that Bitcoin can reach the $100K level. That’s a 32x growth when measuring from the relative market bottom of $3,125 in December 2018, all the way to the projected $100K.
If this is true, what could be the reasons behind the price rally? The key macro factors include rising institutional interest, increased development of crypto infrastructure and the use of Bitcoin as a hedge against inflation.
Large financial institutions target Bitcoin
The previous growth cycles in Bitcoin’s history were mainly fueled by small to medium-sized institutions, as well as the retail market. The 2017 ICO boom is a good example of retail FOMO, or “fear of missing out” as individuals flocked to buy Bitcoin in hopes of making quick returns.
A Google Trends search on “Bitcoin” clearly shows that the retail market was most interested in the crypto from November to late December of 2017.
Interestingly, although Bitcoin’s price increased 428% from the March 2020 lows to the recent highs of $16,500, the Google Trends data shows that there hasn’t been a relative increase that’s proportional to the 428% price growth. In fact, the trend index shows a relatively flat scale with no signs of significant search volumes compared to the ICO boom era.
One reason for this can be that the recent price growth has been mainly due to investments by large financial institutions — the “smart money”.
MicroStrategy, a mainstream corporation listed on NASDAQ, for example purchased $425 million in Bitcoin due to concerns of inflation.
FinTech company Square also bought $50 million worth of Bitcoin, as “Square believes that cryptocurrency is an instrument of economic empowerment and provides a way for the world to participate in a global monetary system, which aligns with the company’s purpose”. This purchase represents 1% of Square’s total assets as of Q2 2020.
The path towards $100K will be fueled from large financial players as the trend continues. Sure, the retail market will also FOMO in like the previous ICO boom, but this time the market will have corporations buying Bitcoin with strong hands. It’s only a matter of time before more institutions realize that Bitcoin can be a viable company asset that offers higher inflationary protection than the likes of traditional assets or fiat currency.
In tandem to brewing institutional interest, the development of better products and services built around Bitcoin is also a key growth driver.
Bitcoin infrastructure has matured with better products and services
As with most new technologies, Bitcoin’s previous bull runs were accompanied by primitive infrastructure. Users were able to perform basic functions in buying, selling and holding Bitcoin. However, there weren’t many financial products or robust services geared for institutional and mainstream customers to utilize.
After the 2018 bubble burst, there has been more growth in better products, such as user-centric crypto apps that have enhanced features beyond a simple wallet. Crypto wallets apps reached a record 3.5 million downloads in July 2020, which represents a 81% growth in a one year period. Beyond downloads, the number of actual active users rose 110% in a span of 8 months.
Crypto lending and borrowing platforms have also grown, where Bitcoin holders can earn passive interest simply by lending to companies such as Celsius Network and BlockFi.
Bitcoin derivatives have also developed — take for example the CME Group’s Bitcoin futures. The Bitcoin options market overall has also grown 6x since January 2020.
When better services and options are available, more users on both the retail and institutional front are incentivized to use Bitcoin in a variety of ways. This increases overall adoption and real-world use cases where people have greater incentives to buy Bitcoin.
The trend will continue as demand increases for new products that rival existing financial services. As such, more investors and users will be able to take advantage of the much improved financial services built around Bitcoin.
Digital gold: a global hedge against inflation
Often touted as “digital gold”, Bitcoin’s role as a digital store of value stems from the characteristic that it has the limited supply quality of physical gold, while having the convenience and portability of fiat money.
Bitcoin is technologically designed to “encourage deflationary attitude” as the maximum supply is capped at 21 million. This is in contrast to fiat currency, where central banks can print money according to monetary policy. Printing in general leads to inflation without proper counter measurements like quantitative tightening. Keeping simple economics in mind, Bitcoin’s price will increase as demand increases while the available supply decreases. Such economics point to confidence in Bitcoin as a true digital store of value that’s resistant to inflation.
So where will the new money flowing into Bitcoin come from? Besides institutional capital, we can also consider scenarios where funds currently invested in the stock markets could flow into Bitcoin.
The global stock market is worth $95 trillion. If 2% of this were to transfer into Bitcoin’s market cap, then price can realistically reach $118,511 BTC/USD:
- Take Bitcoin’s circulating supply of 18.54 million and total market cap of $297 billion as of this post
- Assume that 2% of the global stock market’s value of $95 trillion = $1.9 trillion flows into Bitcoin’s market cap
- New price = [$1.9 trillion from global stock market + $297 billion of Bitcoin’s existing market cap] divided by [18,538,368 circulating Bitcoin supply] = $118,511 per Bitcoin
- All other factors assumed constant for purpose of simplicity
With this modest assumption, it’s certainly reasonable for Bitcoin to reach over $100K within the next 5 years.
$100K Bitcoin is closer than most people imagine
Of course, price will not linearly increase straight to $100K because there will be zig-zags to eventually reach the six figure USD level. However key macro factors supporting Bitcoin’s rise in market cap do strongly suggest significant growth in the near future. Remember — the “trend is your friend until the very end”.
As always, do your own research. Not financial advice.
