Is Bitcoin the New Pac-Man?

Way back in August 2017, the total value of bitcoin (21 million x the value of 1 bitcoin) surpassed the $64 billion market cap of the global fine art market. Bitcoin at the time was trading around the $3K level. At the time of writing, bitcoin is priced in the mid $50,000’s. Should it reach $71,500 it will surpass the entire market cap of the global silver market.

In this article, we look at non-cryptocurrency asset markets, their total value, and where bitcoin could eat into them.

Chasing gold

We recently explored the rise of gold as a store of value and its possible replacement by bitcoin. For most commentators, gold is the holy grail of bitcoin comparison valuations. Bitcoin’s market cap currently stands at around $500 billion, if it were to rise to gold’s $10 trillion market cap, the price of a single bitcoin would be $535,000.

Similarities between the two are obviously based on their non-fiat currency status and their use as a defense against inflation. While gold does not have as attractive a limited supply as bitcoin, it is relatively stable.

The growing replacement of gold by bitcoin is in part driven by the physical limitations of transferring gold versus the electronic, efficient and simple nature of bitcoin. Crucially, gold’s supply is unknown and potentially vast, whereas there will only ever be 21 million Bitcoin and the available supply is ever decreasing by design.

The potential for derivative products, interest-bearing facilities and more are also increasingly being realized in the bitcoin universe.

With gold holding a record market cap of $10+ trillion and bitcoin sitting at around $500 billion, there is plenty of room for further bitcoin gains.

You may laugh, but it would be a good bet that new investors can learn how to buy bitcoin far quicker than they can learn to buy physical gold at wholesale prices. Remember also, there is no fixed cap on demand. The other side of the price is simply the availability of US dollars and any devaluation of USD would further increase the value of Bitcoin.

Gold is clearly the major commodity at risk of being eaten by Bitcoin, but why stop there?

Equities

In the first decade of Bitcoin’s existence, the market was very much like the fine art market. Exclusive, opaque, and hard to forecast value. Today the opposite is becoming true and Bitcoin will continue to eat into other asset classes’ investor pools. The recent announcement by Tesla of a $1.5 billion holding means that every investor in the S&P index now has an interest in the value of BTC.

Think about that. Every pension fund on the planet will now have value based partly on whether bitcoin goes up or down and this is only the beginning.

Listed companies like Grayscale Bitcoin Trust (GBTC), whose value is almost completely tied up in bitcoin, often trade at much higher multiples of their actual cryptocurrency holdings, though this has sometimes ceased to be the case as of late. This can mean that investors are paying a significant premium for having a buffer between themselves and owning bitcoin with all the regulatory and reporting requirements offloaded onto the company owning the bitcoin.

Once bitcoin becomes more mainstream, this “premium” should be better reflected in the actual price of bitcoin.

Commercial real estate

Commercial real estate is a solid investment in normal times, with generally stable annual returns. The pandemic has permanently disrupted this entire industry, even adjusting for the WeWork hangover.

The commercial property market in the US alone had a market value of $16 trillion in 2018. Globally, the 2017 valuation was $33 trillion. As retail shopping moves further online and cities change to reflect the different work habits of the next generation, real estate investors are going to be very careful about where they put their money.

It is not unreasonable to suggest that at least some of this pot will be moved into cryptocurrencies, and potentially a very large chunk of this pot could change hands.

Offering a lifeline

TradingView recently produced a report, further reported in the Guardian, that online searches for bitcoin can be directly correlated with unrest. Syria, Libya and Venezuela all score high with Cuba leading the way in terms of internet searches about cryptocurrencies.

Growing uptake in societies that have little faith in their own fiat currencies would lead to a decrease in US dollar and local currency usage and an increase in bitcoin demand. Again, eating into an existing fixed pot.

So how much could bitcoin be worth?

Back in December, Guggenheim Partners, who manage over $300 billion in funds, forecast bitcoin to hit $400,000. Famed investor Cathie Wood and others have chimed in that they see the same trajectory and some have even suggested that $300,000 to $400,000 would be a base case valuation. Others see the prices rising higher still.

If it did hit $400,000, this would value the bitcoin market at $8.4 trillion. Does that sound unreasonable to you? This is the real question we should be thinking about when deciding whether to invest in Bitcoin long term.

One thing appears clear, it will be a wild ride in the crypto sector over the next few years, unlike anything that has gone before. There will inevitably be bitcoin price drops and hikes, and as more people hold for longer, there will be less to trade which is likely to push the price up ever further.

If you are wondering how to think about the different types of cryptocurrencies, consider the trading card market. Bitcoin may be Mickey Mantle today, but you never know who else is going to change the play and hit one out of the park.

If you want to future-proof your crypto investment, while Bitcoin seems to be the safest bet, for now, it is advisable to begin researching how to diversify your basket of cryptocurrencies, so you don’t only own Bitcoin, but also the next big cryptocurrency to have its turn reshaping the financial landscape.

The author works exclusively for Xcoins.com and has spent almost 20 years in trading rooms from New York and London to Düsseldorf and Sydney. To stay up to date on all things crypto, like Xcoins on Facebook, follow us on Twitter and LinkedIn and enter your email address at the bottom of the page to subscribe.