It is very important to understand the major shifts happening in the economic system and in the cryptocurrency sector in particular. For the past several years the biggest asset managers in the world called Bitcoin and all crypto rat poison, claimed it was only used for money laundering, etc. Now those very same people are suddenly rushing into the crypto sector and getting the infrastructure set up for a new financial system.
Between BlackRock, Fidelity, JPMorgan, and a handful of top financial institutions entering the space, we are talking about $27 trillion in assets under management that will soon be enabled to buy Bitcoin. This chart shows a quick summary but is not all inclusive.
In the past few weeks also, we also have Deutsche Bank launching crypto custody service, Citadel, Fidelity & Charles Schwab launch a crypto exchange, Fidelity applying for a Bitcoin ETF, MicroStrategy buying another $347 million worth of Bitcoin, NASDAQ launching a crypto custody service, and Soros Fund Management doing an about-face and stating “crypto is here to stay.”
Hong Kong’s biggest bank, the $1.3 trillion HSBC, now offers Bitcoin ETFs to clients. The $5 trillion French asset manager CACEIS will also start to offer crypto custody services. And just announced today, a landmark U.K. finance bill that will recognize crypto as a regulated financial activity in the country has passed into law with King Charles giving it the final approval. The movement is global.
So we are likely to see institutions with well over $27 trillion in AUM start to offer crypto services of one kind or another. Bitcoin is just a $600 billion market cap asset today so this potential flood of new capital is around 50x the total market cap of Bitcoin or around 25x the total market cap of the entire cryptocurrency sector!
Yet, the supply of Bitcoin is capped at 21 million coins and they are tightly held by passionate investors.
How Tightly is Bitcoin Held?
“I got a call from Paul Tudor Jones and he says, “Do you know that when Bitcoin went from $17K to $3K that 86% of the people that owned it at $17,000, never sold it?”…So here’s something with a finite supply and 86% of the owners are religious zealots.” – Stanley Druckenmiller
In fact, over the past year roughly 70% of the entire supply has not moved.
According to Bloomberg, Cathie Wood’s ARK Bitcoin ETF may be in pole position to be approved after the application was amended to include a surveillance sharing agreement just like BlackRock’s. But this is not the only active Bitcoin ETF application. Others now include Blackrock, Valkyrie, Invesco, WisdomTree, BitWise and Fidelity. Of course, this does not guarantee approval, but increases the odds significantly. And importantly, we are talking about a spot Bitcoin ETF that buys and holds actual Bitcoin, with upward price momentum created from the new demand. This is in contrast to the recently passed leveraged futures Bitcoin ETF.
And if this all wasn’t bullish enough, we are less than 10 months away from the next halving event. The next bitcoin halving is expected to occur in April 2024, when the number of blocks hits 740,000. The block reward will decrease from 6.25 to 3.125 BTC. The Bitcoin inflation rate will drop from 1.7% to 0.84%. This will bring Bitcoin’s inflation rate under 1% for the first time and well below gold’s inflation rate of around 1.5%.
There is plenty of debate around what to expect from Bitcoin heading into the halving and whether this event is priced in ahead of time or not. But looking back at the past halving events, we see that the price typically rallies in the year prior to the halving and then rallies even more strongly in the year following the halving. This makes sense given that the rate of new supply gets cut in half.
The next 10 months is likely to be an accumulation phase with the price trending gradually higher before a more parabolic move in 2024. We typically add to our stack monthly in the Crypto Corner portfolio, while also adding on any major dips of 10% or more. I am a little cautious at the current time given that the Bitcoin price has roughly doubled in 8 months off the November 2022 lows around $15,000 to $30,000 today.
The RSI momentum indicator has been overbought for most of the past week and remains elevated at 65. The price made a slightly higher high in late June versus April and has bounced strongly off the 200-day EMA. As noted above, I think dollar-cost-averaging with purchases in regular intervals is a good strategy for most investors. And despite some caution in the near term, I am very bullish in the medium and long-term on Bitcoin and a handful of quality altcoins. I think a short period of consolidation or correction here is healthy for the bull cycle we have entered and I would view any pullbacks as buying opportunities.
I expect the Bitcoin price to climb above $50,000 by the end of the year and well above $100,000 by the end of next year. Over the next 5 years, I would not be surprised to see Bitcoin reach $1 million per coin. For the market cap to match that of gold, Bitcoin would need to rise above $500,000 per coin. The late Hal Finney, who many believe was the creator or one of the creators of Bitcoin, once mused after the Genesis block that Bitcoin could one day be worth $10 million per coin.
Hal Finney wrote as part of what he termed an ‘amusing thought experiment,’
It’s interesting that the system can be configured to only allow a
certain maximum number of coins ever to be generated. I guess the
idea is that the amount of work needed to generate a new coin will
become more difficult as time goes on.
One immediate problem with any new currency is how to value it. Even
ignoring the practical problem that virtually no one will accept it
at first, there is still a difficulty in coming up with a reasonable
argument in favor of a particular non-zero value for the coins.
As an amusing thought experiment, imagine that Bitcoin is successful and
becomes the dominant payment system in use throughout the world. Then the
total value of the currency should be equal to the total value of all
the wealth in the world. Current estimates of total worldwide household
wealth that I have found range from $100 trillion to $300 trillion. With
20 million coins, that gives each coin a value of about $10 million.
So the possibility of generating coins today with a few cents of compute
time may be quite a good bet, with a payoff of something like 100 million
to 1! Even if the odds of Bitcoin succeeding to this degree are slim,
are they really 100 million to one against? Something to think about…
In today’s terms, it would be closer to $20 million per coin. Of course, that thought experiment depends on one thing: Hyperbitcoinization. This is the idea of the world running on Bitcoin. And it’s a big assumption. Yet with the world’s largest financial institutions suddenly rushing into the sector and a few countries making it legal tender in the past few years, maybe the odds aren’t as far-fetched as originally imagined.
Fast forward to today and we are seeing the largest asset manager in the world looking to launch a Bitcoin ETF to attract investors that have thus far been reluctant due to perceived risk of self-custody or lack of regulatory clarity. And I suspect it is only a matter of time before more governments and central banks start to buy and hold Bitcoin on their balance sheets.
Just this week the North Carolina House passed a bill directing the state treasury to study the process of buying and holding Bitcoin. Countries that can print their own currency will be next and I think we will see a rush to the exits, with massive amounts of fiat money being created to accumulate as much Bitcoin as possible before other nations do the same. The race will be on and accelerate quickly once it gets going. When this occurs, it will be hard to keep the price from exploding higher.
In an encouraging development, a growing number of politicians and several Presidential candidates have come out in support of Bitcoin. Probably the most outspoken has been US Presidential candidate Robert F. Kennedy Jr.:
“Bitcoin is a bulwark against totalitarianism and the manipulation of our money supply. As president, I will make sure that your right to use and hold Bitcoin is inviolable. Bitcoin is not only a bulwark against totalitarianism and the manipulation of our money supply, it points the way toward a future in which government institutions are more transparent and more democratic.”
He also went on to say: “I oppose CBDCs because they are instruments of control and oppression.”
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