Author: Matt Hougan, Chief Investment Officer of Bitwise
Translated by: Luffy, Foresight News
One common mistake people make when evaluating Bitcoin is severely underestimating its potential.
Last Monday, a financial advisor asked me a good question: Does Bitcoin need the dollar to collapse to reach $200,000?
This is a good question because it reveals the vague logic used by many when discussing Bitcoin. In my experience, they often say: Bitcoin is digital gold, and the U.S. is printing money on a large scale, therefore Bitcoin has value.
That statement is not incorrect; I have said similar things on CNBC. But it’s a lazy way of thinking that conflates two different arguments. It leads people to seriously underestimate the full potential of Bitcoin and the likelihood of its success. If you separate these arguments and consider them individually, you will have a better understanding of Bitcoin.
Argument 1: Bitcoin will succeed
When you buy Bitcoin, your first bet is that it will ultimately succeed. For me, this means it will one day stand alongside gold as a mature and easily understood means of value storage held by all types of investors.
Over the past 15 years, Bitcoin has made significant strides toward this goal. It has evolved from being worthless to an asset valued over $1 trillion, with 60% of large hedge funds globally, the largest asset management companies, and even some countries holding Bitcoin. It has gone through bull markets and bear markets, scandals and breakthroughs, and multiple regulatory challenges. Now, most people acknowledge that it will continue to exist.
But it is not yet 'mature.' Today, most institutional investors still do not hold Bitcoin; many financial institutions still prohibit Bitcoin activities; and the media still do not trust it. Many people still do not understand it, and you rarely hear such things about gold.
A simplified zero-sum version of this argument is that Bitcoin will eat away at the gold market. But I believe the more likely scenario is that Bitcoin will gradually expand the size of the 'value storage' market.
Bitcoin has a market cap of $1.3 trillion, capturing 7% of gold's $18 trillion market cap. I don't know if 'mature Bitcoin' will be half the size of gold, equal to gold, or higher. But I am sure it won't just be 7%.
Thus, betting on Bitcoin is betting that it will continue its journey from niche to mainstream. This has been the primary driver of Bitcoin's astonishing returns over the past 15 years. I believe there is still significant room for growth in Bitcoin.
Argument 2: The government will devalue fiat currency
The second bet when buying Bitcoin is that the U.S. and other governments will continue to print money and incur debt, leading to the devaluation of fiat currency. According to this reasoning, this both increases the value of 'store of value' assets like Bitcoin and gold and encourages more investors to invest in such assets, further expanding the market.
The U.S. currently has $36 trillion in debt and adds $1 trillion every 100 days. This year, the dollar will spend $900 billion on debt repayment, with interest payments being one of the largest expenditures in the federal budget. The Congressional Budget Office estimates that by 2054, debt will reach $142 trillion.
I believe that such a massive amount of debt and money printing will expand the value storage market, as investors seek a safe haven to avoid currency devaluation. Can the current $20 trillion value storage market become $50 trillion in 10 years? Or even $100 trillion?
It is obvious that if the value storage market doubles in size over the next 10 years, and Bitcoin retains only 7% of that market, then the price of Bitcoin will also double.
It is worth noting that many people in the Bitcoin community (myself included) believe that Bitcoin's uses extend beyond traditional 'value storage.' For example, I believe Bitcoin will one day be used as an alternative to national currencies for settling international payments. Any additional use cases like this would further increase Bitcoin's value.
Conclusion
The importance of these arguments lies in the fact that they are both overlapping and independent.
What I mean by independence is that you only need one of them to be a successful investor.
Imagine that Bitcoin captures 25% of the current gold market, with no other changes. No market expansion, no new use cases, and no concerns about rising debt. In this case, Bitcoin would reach $214,000, about four times its current level.
Or imagine that Bitcoin's market share did not grow, but the value storage market doubled; then Bitcoin would also grow twofold.
If both scenarios happen, then a miracle will occur. I believe this is the most likely scenario.
So, my answer to my advisor friend is no, Bitcoin does not need a dollar collapse to reach $200,000. It only needs to capture a small portion of the existing gold market to achieve this. As the government continues to print money and Bitcoin matures, it could surpass this level.
