Author: Matt Hougan, Chief Investment Officer of Bitwise; Translated by 0xjs@Jinse Finance
As I write this memo on Tuesday morning, Bitcoin has just set a series of historical highs in the past 24 hours, currently trading at around $88,000. So far this year, it has risen about 100%, and since that historic election on November 5, it has risen more than 25%.
As we publish this article, the market may correct itself—it has risen too fast and too high—but it feels like $100,000 is just around the corner.
Such moments can trigger emotional fluctuations. Those who held Bitcoin before the November elections were ecstatic, and rightfully so. However, many who did not hold it feel like they have missed the opportunity.
To the latter group, I want to say: it's not too late for you to enter. In fact, it is still early until Bitcoin breaks $500,000.
Let me explain.
Reasons for Bitcoin to rise to $500,000 (or higher)
First, let me clarify: No one can guarantee that each Bitcoin will be worth $500,000. We don't even know if it can break $100,000! Bitcoin's price is highly volatile, its future is uncertain, and a correction could happen at any time.
But in my view, $500,000 per coin is the correct dividing line between Bitcoin's early and later stages, and the reason is simple: it marks Bitcoin's move toward 'maturity'.
As I discussed a few weeks ago, investing in Bitcoin is actually a two-sided investment. When you bet on Bitcoin, you are betting on:
1. As governments accumulate debt and devalue their national currencies, the demand for value storage assets like Bitcoin and gold will increase;
2. Bitcoin, as a means of value storage, will increasingly be widely accepted, on par with gold.
The second bet is actually another way of saying that it's not too late to enter Bitcoin now. This bet is still valid for the following reasons.
A mature value storage asset looks like gold. When institutions allocate to gold, or when central banks invest tens of billions of dollars from their balance sheets, no one is surprised. You won't read a lot of media reports that are skeptical of gold, nor will you see sitting U.S. senators forming an anti-gold coalition. Gold has already 'made its mark'.
Bitcoin is not like that. Even after this latest surge, Bitcoin is still evolving. When pension funds and endowments make small investments in cryptocurrencies, it is still considered news. The U.S. Department of Labor is still warning 401(k) plan providers not to include Bitcoin in their portfolios, citing the need for 'extra caution'. And when large hedge fund investors express optimism about cryptocurrencies, it still causes a stir.
With the tremendous success of Bitcoin exchange-traded products (ETPs) and the emergence of policymakers supporting cryptocurrencies, the market has made significant progress. However, until Bitcoin becomes as mundane as gold—widely held by central banks and various institutions—by definition, it's still not too late to enter now.
So why $500,000? Well, the current gold market is valued at $18 trillion, while Bitcoin is about $2 trillion. This makes the value storage market approximately $20 trillion. When Bitcoin matures, it will at least share this market with gold.
Currently, there are about 20 million Bitcoins in existence—an additional 1 million will be issued over the next century—so when Bitcoin reaches $500,000, it will hold half of the market share.
Everything is still early before that.
Conclusion: What conditions are needed for Bitcoin to rise to $500,000 (and why I believe it will rise even higher)
What conditions are needed for Bitcoin to truly rise to $500,000? Among other factors, we may need those groups that currently allocate widely to gold to also allocate to Bitcoin. The biggest missing link in this equation is the central banks of various countries.
Currently, governments hold about 20% of the world's gold reserves, whereas the proportion of Bitcoin held is less than 2%. To get Bitcoin close to the $500,000 price point, we need to see this gap close. This is a formidable task, but we have already seen some progress. Perhaps the biggest example is U.S. Republican Senator Cynthia Lummis's plan for the U.S. to establish a national Bitcoin reserve, aiming to purchase over $80 billion worth of Bitcoin with government funds. If we start to see this happen, a $500,000 Bitcoin could become fully achievable.
But I believe it will ultimately rise higher. My target of $500,000 is based on the premise that Bitcoin will capture market share from gold, and in fact, I believe it will expand the entire market. Moreover, this target assumes that the value storage market is static, whereas I think it will grow rapidly as governments continue to accumulate debt and print money.
Will we see Bitcoin rise to $1 million? Or even higher? It is absolutely possible. But $500,000 seems like a good starting point.
