Last June, I wrote that being on the sidelines of Wall Street isn’t necessarily bad for our industry. While most traditional investors are still watching, the dominant trend in Bitcoin (BTC) has increased over the past four months. Bitcoin is currently hovering around $ 18,000 and is steadily getting closer to historical history.

Bitcoin is a store of value and a potential global reserve currency
When it comes to asset valuation, the first step is always to understand the underlying economics. For example, stocks, bonds, and real estate usually have cash-generating value. Therefore, the valuation of these assets assumes an expectation of future cash flows. On the other hand, raw materials are more dependent on use, so prices are tied to industrial supply and demand.

So what exactly is Bitcoin? This is my choice that carries:

Bitcoin is powerful money and the first original internet money in the human community.
It is rare (with a constant supply of 21 million), permanent (digital), available (24/7 blockchain), divisible (1 bitcoin equals 100 million satoshires), verifiable (open source bitcoin core) and most importantly, censored (encoded).
With these superior cash features in one asset, Bitcoin is a great store of value. When Bitcoin reaches a critical mass of acceptance as a store of value, it has great potential to evolve over time into a global reserve currency as well as a global unit of account.
The history of money shows us that natural forms of money usually go through three stages of development: the first as a collective being (speculation about scarcity), the second as an investment (store of value), and the third as money (a unit of money circulation). account) and payment (average exchange)).

Between 2009 and 2018, Bitcoin was in its first “collection” phase. Demand was difficult to gauge given the flexible nature of speculative trading, which was compensation for owners (mainly cryptographers) who believed in Bitcoin as the “healthy money of the future.” The Bitcoin network has also experienced one of the most dangerous social divisions that led to the creation of Bitcoin Cash (BCH) in 2017.

We are now at the very beginning of the “investment phase”. This year has brought us a global pandemic, continued uncertainty, gratuitous money printing, and in contrast to the successful third half of Bitcoin (as expected). For the first time since its inception, Bitcoin has entered mainstream media as digital gold to hedge inflation risks. As more people start using Bitcoin as a long-term wealth preservation mechanism, a simple structure for assessing supply and demand becomes much easier.

There are several factors that can increase the price of bitcoin in such an environment. Given that we are still in the early stages of mass adoption, I would leave most of them conservative and focus only on the highly likely scenario in which 1-2% of the US family wealth is allocated to Bitcoin, while the latest report actually recommends target distribution of 5%.

According to the US Federal Reserve, the size of the American household reached $ 112 trillion by June 2020. Thus, the potential demand of 1% to 2% would be between $ 1.1 trillion and $ 2.2 trillion. In terms of supply, there are currently about 18.5 million BTC in circulation. For simplicity’s sake, let’s say the max bid is 21 million, everything is for sale. Demand divided by maximum bid – we get a price range of $ 56,000 to $ 112,000. Given the current general trends, it is quite normal to expect this to happen in 2021.

According to the global report Credit Suisse Global Report 2020, if we were to use a $ 400 trillion account of global family wealth, a global distribution of 1% to 2% could bring the price of bitcoin down to $ 228,000- $ 456,000. Probably no. Could this happen in the next decade? Quite possible.

What could go wrong?
It makes sense to play the devil’s advocate and assess the risk of trouble. Let’s take a look at the main risks that can derail Bitcoin’s growth.

Protocol risks. The biggest danger always comes from within. Bitcoin has intrinsic value only because it has the unique properties of “healthy money” – rare, durable, affordable, divisible, manageable, and censorship resistant. If any of these characteristics are violated, the foundation of the investment case will be destroyed. Protocol stakes were high in the early years. After two controversial large hard forks and three successful halves, the protocol-level risk seems to be contained now.

Political risks. Given that Bitcoin is positioned as the future of money, it is possible that sovereign governments will ban it for fear of a threat from fiat currencies. Such bans have already been introduced in several countries. However, due to the lack of geopolitical homogeneity and the increase in the rate of spread of bitcoins in the mainstream, the risk of cryptocurrency exclusion from existence is decreasing every day.

Risks of adoption. It’s a risk of time. It is very likely that B will take longer than expected.

Source: CoinTelegraph