Since hitting an all-time high of almost $69,000 last November, Bitcoin's (BTC 0.94%) price has plunged about 70% as of this writing as investors have soured on risky assets. But despite the poor recent performance, this doesn't mean that the long-term potential for this top cryptocurrency is impaired.
In order for Bitcoin to reach $100,000 per coin, it would need to rise in value roughly fivefold. This might seem like a stretch, but it isn't out of the realm of possibilities. Let's take a closer look at what needs to happen.
CRYPTO: BTC
Key Data Points
The store-of-value argument
Bitcoin's most prominent use case rests on it becoming viewed by investors as a "digital gold." For decades, gold has been a popular asset for people to park their money in. Bitcoin, however, has four key advantages compared to the precious metal.
Bitcoin is easier to store, as it doesn't take up any physical space. Secondly, one Bitcoin is divisible to the eighth decimal place (or one-hundred-millionth of one Bitcoin), called a Satoshi. Additionally, thanks to the numerous payment services out there, like a Visa debit card from Coinbase and "Checkout with Crypto" from PayPal, Bitcoin can be used to buy goods and services.
Lastly, Bitcoin is absolutely finite. There will only be 21 million coins ever produced. And this supply cap, coupled with rising demand, supports a higher price over time. The supply of gold, on the other hand, can increase if the price of the metal soars enough to make it economical to search for deposits and open more mines around the world.
These critical characteristics support the argument that Bitcoin could very well be superior to gold as a store of value. Even if Bitcoin's entire market cap, which stands at $393 billion as of this writing, only reaches 15% of the $12.5 trillion of gold in the world, the price of one coin would eclipse $100,000. I don't think that's a huge stretch.
Expanding set of infrastructure and utility
It's probably very likely that most people's first interaction with cryptocurrencies is to buy Bitcoin. Luckily, today, there are an unlimited number of ways to purchase the digital asset. Fintech players like Block, Coinbase, PayPal, and Robinhood make it effortless to buy and store Bitcoin with just a few taps on a smartphone.
Then there are more advanced services that might appeal to institutional investors. For example, investment bank Goldman Sachs has a dedicated Bitcoin trading desk. There are also numerous Bitcoin-related exchange-traded funds.
Because fiat currencies, like the U.S. dollar, lose value over time thanks to inflation, major corporations like Block, MicroStrategy, and Tesla have decided to allocate some cash on their balance sheets to Bitcoin. I expect more companies to do this as well.
The growing legitimacy of Bitcoin as an asset has resulted in countries like El Salvador and Central African Republic making it legal tender within their borders. Whether citizens are actually using Bitcoin in their daily lives is another issue, but these moves demonstrate that leaders are taking it seriously.
Besides being used primarily as a store of value, Bitcoin could also play a role in disrupting the $589 billion global market for remittances. Citizens abroad must traditionally pay hefty fees, averaging 6.5% of the transaction size, to money transmitter businesses in order to send money back home to loved ones. Developers must find ways to scale Bitcoin's network, but with fees that are essentially nonexistent, this is a potential use case that can unlock sizable economic value in the world.
As demand for Bitcoin rises, the price will, too.
One looming threat
The path to $100,000 per coin is not without risks. The biggest factor to consider is the threat of government intervention. Last year, China basically banned mining and owning cryptocurrencies. While leaders in the U.S., like Securities and Exchange Commission Chair Gary Gensler and Federal Reserve Chairman Jerome Powell, have publicly stated that they don't intend to ban cryptocurrencies, investors will need to pay attention to any developments here.
In May, the While House issued an executive order tasking various governmental agencies with learning more about digital assets and finding ways to regulate them for the safety of consumers. I think this was positive news that signaled the legitimacy of crypto in a way that will be productive for all stakeholders.
Practice patience
Even though it's the world's first and most valuable cryptocurrency, investors will want to adopt a very long time horizon. Bitcoin will undoubtedly experience more ups and downs on the way to possibly reaching $100,000. The smart move is to put just 1% of a well-diversified portfolio in it. This way, the downside is limited, and the upside is massive.
