“It’s not worth the ink it’s printed on, really.”
That was the recent feedback in our office on an essay where I noted that bitcoin could hit $500,000 or even $1 million per coin…
In a bull market, nobody bats an eye at a bold claim like bitcoin hitting $1 million.
But in a bear market? That’s when you get called crazy.
I don’t mind. I’ve often found that an investment that seems crazy can eventually deliver huge performance…
Like buying blue-chip stocks in early 2009 when many expected another leg down in the stock market… or buying energy stocks in 2020 when oil briefly traded at a negative price…
So, in today’s essay, let’s break down three key reasons why I think bitcoin can hit six figures in the years ahead… And why you should be dollar-cost-averaging in the current Crypto Winter.
- Reason No. 1: The Market Is Mistaking Centralized Exchange Failures as a Crypto Problem
We’re still seeing the impact of crypto platform FTX’s implosion. Many smaller exchanges like AAX and BlockFi have also frozen up, and uncertainty still reigns.
As Daily editor Teeka Tiwari recently wrote, this isn’t a crypto or blockchain problem – it’s a greed problem. But there’s also a silver lining…
Data from Coinglass shows that even as centralized crypto exchanges have frozen up or gone bankrupt, investors have moved their bitcoin off exchanges in droves.
From this data, it may look like investors are headed for the hills.
But the failure of a greedy centralized exchange is not the same as the failure of cryptocurrency or blockchain.
After all, investors didn’t stop investing in stocks in 2008 following the bankruptcy of Lehman Brothers or Bear Stearns. Instead, stronger financial institutions picked up the pieces.
That will be the case with crypto today. Business is going from overleveraged and opaque centralized exchanges to decentralized exchanges (DEXs) that offer much greater transparency.
Sure, the native token prices for these decentralized prices are down with the overall pullback in the crypto market.
But once these DEXs prove their stability and legitimacy, that fear will subside, and their prices will rise again…
Just like stock prices rose in 2009 when no other brokerage firms went belly-up.
As the top crypto, bitcoin will lead the way up…
Since it’s decentralized, you can’t tamper with or alter the bitcoin code. That makes it essentially immutable, unlike centralized crypto exchanges like FTX that are subject to human greed… And that will prove a key factor for bitcoin’s steady, higher returns.
- Reason No. 2: Multiple Data Points Show the Bitcoin Network Continues to Grow
Since bitcoin runs on a transparent, decentralized blockchain, anyone can see the health of its network at any time…
First, there’s the total number of bitcoin owners. Part of the value of any network is the total number of users it has, so this is a key metric.
For the U.S. alone, bitcoin users have risen from about 8% of the population in 2019 to over 23% at the end of last year… with estimates of about 25% this year.
While that’s a bit of a slowdown, the big jump over the past few years still leaves about 75% of the population available for future growth.
The second key data metric is bitcoin’s “hash rate.” This shows the computational power needed to determine the security and mining difficulty for new bitcoin.
And although the price of bitcoin has fallen more than 75% in 2022, its hash rate has been setting record highs in 2022.
This shows that users are continuing to mine for bitcoin… And that network strength remains robust.
It also indicates that bitcoin’s price will likely rise once the current market fears subside.
- Reason No. 3: Today’s Markets Are Designed for Bitcoin
While some say bitcoin protects against inflation, I think it’s more accurate to say that it protects against arbitrary change in the value of a fiat currency.
As an early-stage asset class, its returns fluctuate wildly… But if it can successfully rival gold as a reserve asset in a fiat world, BTC can ultimately be worth hundreds of thousands of dollars.
And if bitcoin grew to be worth just 5% of global assets, each coin would be worth over $2 million… That’s even more bullish than we expect by 2030, but not unreasonable.
In a world where governments print money at will, the fixed supply of bitcoin means its price will continue to rise in the long term.
Can we predict an exact valuation? Or an exact year? Probably not.
Much like trying to value the price of gold, there’s no underlying business or cash flow to analyze.
So when it comes to valuing cryptocurrencies, we must look at other trends.
Bitcoin hasn’t been around long. But it has shown a four-year cycle.
Right now, we’re in the middle of the winter part of that cycle. Things look grim. And that likely won’t begin to change until the next halving in early 2024.
But as we saw in the last Crypto Winter, investors who buy in those winter months are more than fairly rewarded for their patience.
The last “crypto spring,” from early 2020 to late 2021, saw bitcoin rise from around $4,000 to over $68,000 – a 17x gain.
Earlier cycles saw stronger gains and steeper volatility than 2022’s decline.
So patience is a virtue that’s still rewarding to long-term investors… The downward moves might be bigger, but the wins will be, too.
Bottom line: Crypto is down right now for a number of reasons.
But it’s not “crazy” to see that bitcoin can recover from the current market mayhem and thrive in the years ahead.
Beyond falling prices and dire headlines – mostly related to opaque, centralized crypto exchanges and greed – there’s a massive opportunity.
Investors are still embracing the bitcoin network. And those who start buying now can reap the rewards in the next bull market.
A small allocation, built using dollar-cost averaging, can steadily grow your crypto holdings now for life-changing returns when the market recovers.
Analyst, Palm Beach Daily