Is it Too Late to Buy Bitcoin? | Bitcoin Price Prediction (ft. Cathie Wood, Michael Saylor)

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3 years ago

Hello everyone, here are my thoughts on future bitcoin price, based on the work of Ark Invest and Microstrategy. This hasn't been the first All Time High in the history of bitcoin. Bitcoin also reached and ATH of $20,000 in 2017, before crashing back down to $3,000. So what makes this time different?

Retail Investors

Previously, most bitcoin was owned by short term speculative retail investors, or at least, so the story holds. This led to an extreme bubble, which soon burst. In contrast, today's Millenials and Gen Xers view bitcoin as a true alternative investment, while baby boomers consider it a great hedge against inflation. However, the most important difference between now and 2017 is:

Institutional Investors

Bitcoin has gotten large institutional approval and adoption. Institutions, including both established financial enterprises and large companies, are gaining exposure to bitcoin, with regulators allowing this move. With the money supply increasing, and the USD losing purchasing power, a conversion of at least a portion of a company's balance sheet is not only smart, but to many, the only real option. Institutions can gain exposure to bitcoin in two manners:

1. Balance Sheet Exposure

The fastest and easiest way is through balance sheet exposure. As with Tesla's story at the beginning of the week, an increasing number of institutions are trading some of their cash assets for bitcoin. This does not only provide them with a reserve asset, but also, with a great diversifier, (as bitcoin has the lowest correlation with all other assets), as well as with the best performing asset of recent years. Examples of companies gaining bitcoin exposure are Microstrategy, with $2.5bn invested in bitcoin, Tesla with $1.5bn invested in bitcoin and Square, with $50m invested in bitcoin. A secondary way companies can gain bitcoin exposure is accepting bitcoin as payment for products and services. Tesla and Square are, again, examples of such practices.

2. P&L

The second way is through P&L, meaning that companies can opt to create products and services around bitcoin. In terms of products the most common are bitcoin mines, such as those created by Marathon or mining hardware, such as the products sold by Bitmaine. When it comes to bitcoin services, the sky is the limit. Some examples are exchanges and custodial services, such as the ones offered by Coinbase, derivatives offered by Binance and Loans offered by BlockFi and Fidelity.

Why $500,000?

Hypothetical Impact of Institutional Investment On the Price of Bitcoin | Source: Ark Invest Big Ideas 2021

According to Arc Invest Big Ideas 2021 report, If S&P 500 companies invested 1% of their balance sheets in bitcoin, this would push the price of bitcoin to $80,000. If they chose to invest enough to minimize volatility (2.5%), the price would go to $200,000. And if they chose to maximize their Sharpe Ratios (6.25%), the price of bitcoin could go up to $500,000. This does not take into account companies from emerging markets such as China.

Is it too late to buy now?

Even by the most modest prediction, of $80,000 there is still a chance to double your money if you invest when bitcoin is at $40,000. Depending on when you read this the price of bitcoin could have far surpassed the $500,000 mark. But regardless of when you read this, keep in mind that bitcoin is by nature a deflationary asset, given its fixed supply. With central banks inflating the money supply, most of the value held in fiat currencies will be lost within 5 to 10 years. A conversion of a dilutive asset into a profitable one, regardless of if you are an individual or a business, is never a bad practice.

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