Is Bitcoin too Expensive? Why We Believe It’s Still Cheap.
Is $60,000 too much to pay for one bitcoin? What about $10,000; what about $100,000? We heard the same arguments at pretty much any previous price point. The reality is that Bitcoin is already too big to fail, and it has been in the market for more than ten years by now; Bitcoin has come to stay!
Bitcoin has now reached a market capitalization of more than $1 trillion. To put that in perspective, that’s more than Tesla or Facebook, and it’s getting close to silver. Just one year ago, Bitcoin was just about as big as the beauty company Estée Lauder (have you heard of it?) and now it’s up there with the leading technology companies and is almost ten times as valuable as Goldman Sachs. How likely is it for an asset so big to just disappear from one day to another?
First, there is quite an armada of tech enthusiasts that thoroughly believe in Bitcoin. Those “Bitcoin Maximalists” own a considerable part of Bitcoin’s market cap, and they will hold on for deal life because they believe in the potential of the technology.
Second, by now, institutions have invested in Bitcoin. Everyone who has ever sat through a meeting of an institutional investment committee knows that there will have been some serious discussions before those Bitcoin investments were made. People who manage other people’s money typically don’t just venture into a new asset class without a plan. So those decisions have been made through a strict evaluation process, the board signed it off, and those investors will not just reverse their course if Bitcoin plunges a few percent.
In other words: Behind Bitcoin’s 50k+ valuation stands a pretty solid investment community.
Bitcoin’s intrinsic value
The pricing discussion is closely tied to the question about Bitcoin’s intrinsic value. An approximation could be the formula value = (utility x user base) / supply.
Bitcoin’s utility is similar to the utility gold provides. Apart from jewelry and some limited industrial applications, gold does not provide any real economic value. Its primary function is to provide a store of value. The same goes for Bitcoin, which is also a store of value, but a much more efficient one. We could compare the evolution from gold to Bitcoin to the development of postal services: While physical mail was slow and inefficient, email is much faster and more cost-efficient. An email might not have the same “emotional value “as a letter, but it’s undoubtedly more efficient. The same is true for gold and Bitcoin: Mining and storing gold is physical and cumbersome; with Bitcoin, the entire value chain is digital.
Bitcoin’s user base grows exponentially: By 2030, more than 2.5 billion people could own Bitcoin, a third of the world’s population. And Bitcoin’s supply is limited, as it stays capped at 21 million. Gold supply, on the other hand, keeps growing by about 2.5 percent per year. If the trend continues, Bitcoin could reach gold’s market cap by 2030. That could bring prices to somewhere between $500,000 and $700,000.
It’s also very unlikely that there will ever be a Bitocin ban, as it would be technically and politically almost impossible. And even if there was, the ban on gold in the 1930s has not abolished gold either. In fact, certain locations and investors even benefitted from it, especially in Switzerland. On that note: That’s one of the reasons why we decided to establish a company there.
The bottom line is that each investor has to decide whether $60,000 is cheap or expensive. But I’m pretty sure that some of the people who today find Bitcoin expensive will later buy it at $100,000. Why wait?
For more information on INVAO’s Managed Digital Assets Accounts, visit www.invao.org.