As the S&P 500 just had its worst first-half performance of any year since 1970, the cryptocurrency market has also fallen off a cliff. After approaching a total value of nearly $3 trillion last November, the entire market is now worth just $888 billion as of this writing. Amid the bear market, investors are fearing a recession is on the horizon, causing them to sell off risky assets.
The world's most valuable cryptocurrency, Bitcoin (BTC +1.60%), has also cratered. However, I think there's a good chance that it eventually bounces back. Its price (on the afternoon of July 12) was $19,907 down from an all-time high of $68,790, but there's a clear path for it to one day reach $300,000. And that would equate to a monster 15-fold return.
CRYPTO: BTC
Key Data Points
Bitcoin as a medium of exchange
Launched in January 2009, Bitcoin's creation was truly revolutionary. A borderless, peer-to-peer internet-based currency completely upends the traditional monetary and financial system, one that is controlled by governments. While the idea was sound and made sense, Bitcoin's actual adoption in commerce has been unimpressive.
According to Cryptwerk, Bitcoin today is directly accepted as a method of payment at 7,879 different merchants. And although there are a number of different financial services that allow users to spend with Bitcoin, like Coinbase's Visa debit card and PayPal's Checkout with Crypto feature, consumers aren't really incentivized to do this.
Why use Bitcoin, an appreciating asset that triggers a tax liability when sold, to pay for things? You're much better off buying and holding this digital asset. Spending fiat, or government-issued currency, on the other hand, is what has worked because it is constantly being inflated by massive stimulative measures. Maybe this situation changes in the future, but right now, I don't see how Bitcoin can become an effective medium of exchange.
Bitcoin as digital gold
Many Bitcoin bulls want the top cryptocurrency to become a true medium of exchange, but in its 13-year history, this use case hasn't caught on. Instead, Bitcoin's most promising use case is that it continues to become more popular as a legitimate store of value, or digital gold.
Despite the recent market drawdown, both individual and institutional investors are increasingly allocating small portions of their portfolios to Bitcoin. Whether it is viewed as an inflation hedge or simply as a way to diversify holdings, I believe that as familiarity and understanding of Bitcoin continue to rise over time, more people will own it.
Compared to gold, Bitcoin has some key advantages. Bitcoin is absolutely finite, as there will ever only be 21 million coins created. The supply of gold, on the other hand, can increase if the price of the precious metal rises enough to justify finding and opening new mines. As mentioned, Bitcoin can be used in transactions, a characteristic gold doesn't have. Furthermore, Bitcoin is divisible and a lot easier to store.
Bitcoin's market cap today of $380 billion is roughly 3% of the $12.5 trillion of gold in the world. Even if Bitcoin one day represents 50% of the gold market, which isn't a huge stretch of the imagination, its market cap would be $6.3 trillion. And the price of one Bitcoin at that point easily eclipses $300,000. I have no clue as to the timeframe of this happening, but it appears to be Bitcoin's most likely path to significant price appreciation.
Bitcoin in the remittance market
There is another exciting use case that Bitcoin could positively impact, and that's the market for global remittances. Workers in the U.S. sent $74.6 billion back home to family in other countries, with an average fee of 6% on a $200 transaction. With Bitcoin, the fee is essentially nonexistent. Furthermore, remittances seem to fit perfectly with Bitcoin's narrative of being a borderless global currency.
This is a major possibility of unlocking real economic value. The World Bank estimates that this year, $630 billion will be sent as remittances from economic powerhouse nations to low- and middle-income countries. Six percent of that massive amount equals $37.8 billion, a material sum that can immediately go from paying for fees to having a positive economic impact for those involved.
But as things stand today, Bitcoin's biggest hope is to find a place in a greater number of investment portfolios. And if it can become a reasonable substitute for owning gold, a $300,000 price target is an honest possibility over the long term.
