Bitcoin's (BTC 4.94%) monumental run through 2020 and 2021 created a whole new macro asset class and industry. It's the type of thing that movies will be made about one day. But is it possible that these exponential gains could still just be the beginning for Bitcoin? While the largest cryptocurrency is down 2% year to date after a 302% gain in 2020 and a 57% gain on top of that for 2021, there are several reasons that the original cryptocurrency could be gearing up to head even higher over the long term.
Follow the money
While Bitcoin started as a retail investor story, large hedge funds, institutional investors, and even corporations have become an increasingly large part of Bitcoin's story since 2020. Over the past two years, a who's who of legendary hedge fund managers and investors, including Bill Miller, Paul Tudor Jones, and even Ray Dalio, have spoken positively about the token. Chief executive officers including Elon Musk, Jack Dorsey, and Michael Saylor have acquired Bitcoin for their corporate treasuries.
Now, in 2022, it looks like some of Wall Street's largest institutions are looking to plant their flag in the world of Bitcoin. BlackRock CEO Larry Fink recently said he is seeing increasing client interest in cryptocurrencies and the world's largest asset manager began trading Bitcoin futures last year. Furthermore, Goldman Sachs recently changed its homepage to prominently feature the metaverse, Web3, and cryptocurrency, and the 153-year old investment bank made headlines for becoming the first major U.S. bank to make an over-the-counter Bitcoin purchase, in a transaction with Galaxy DigitalHoldings. These transactions are notable in that Goldman and BlackRock had previously been hesitant toward Bitcoin and cryptocurrencies. Offering Bitcoin and other cryptocurrencies to their clients will bring in a lot more demand for this limited resource.
But it's not just old-school Wall Street banks and asset managers that are buying more Bitcoin. Some of the biggest new buyers are other blockchains. Do Kwon, the CEO and co-founder of Terra (LUNC 1.04%) parent company Terraform Labs, has a goal of buying $10 billion worth of Bitcoin to back the TerraUSD stablecoin. Kwon said that through the Luna Foundation Guard, Terra has bought over $1 billion worth of Bitcoin since the end of January, including a $135 million purchase on March 28. Terra's wallet is now the third-largest holder of Bitcoin, after MicroStrategy and Tesla, but Kwon isn't stopping there. He says he wants Terra to become the single largest holder of Bitcoin. As Terra continues to purchase more Bitcoin and other blockchains that offer stablecoins potentially follow suit, this is another huge demand driver for Bitcoin that will take even more of it off the open market.
2 million Bitcoins left to mine
The Bitcoin network hit a milestone on April 2: There are now only 2 million remaining Bitcoin to be mined out of the original 21 million. While the last Bitcoin isn't expected to be mined until 2140, this is still a good reminder that the supply of Bitcoin is finite and that acquiring new Bitcoin via mining will become more difficult in the future.
Bitcoin's historic performance in 2020 and 2021 attracted a new wave of institutional investors and corporate buyers into the market. Bitcoin is finite by design, and the influx of institutional buyers combined with the rise of other blockchains like Terra that are amassing Bitcoin means that we may still be in the early innings of Bitcoin as it grows more scarce. Bitcoin's market cap of $820 billion is enormous. But it is still small compared to the market cap of gold -- which in many ways Bitcoin is modeled after, at more than $12 trillion. Based on this increasingly scarce supply and powerful new demand drivers, Bitcoin could just be getting started.