With inflation still raging, the Federal Reserve must continue pushing up interest rates in the U.S. -- and this has pressured risky financial assets, a category that cryptocurrencies, including Bitcoin (BTC +0.71%), firmly belong in. Investors just aren't as comfortable owning speculative assets as they were just 12 months ago.
Bitcoin's price is down about 75% since it hit an all-time high of nearly $69,000 about a year ago. But even with the substantial price drop, I think the world's top cryptocurrency could one day eclipse $100,000 per coin. Here's why.
CRYPTO: BTC
Key Data Points
Bitcoin as a store of value
Bitcoin was launched in early 2009 purely as a way for two parties to digitally send money to each other without a central intermediary. This wasn't possible before, so the innovation of Bitcoin was really something special. Today, the network carries a market cap of $320 billion, more than double that of Ethereum. the second most valuable crypto.
Despite its intended goal as a payment mechanism, up to this point Bitcoin has really only been used as an investment vehicle. Some even call it a digital version of gold, a place to store some of your savings to diversify the rest of your portfolio. Bitcoin is probably many people's first exposure to the crypto asset class, so as more people become familiar with it, a higher price should follow. Plus major corporations and asset managers, like MicroStrategy and Cathie Wood's Ark Invest, are bullish on Bitcoin and own some.
If Bitcoin simply represented 16% of the total value of gold on Earth, roughly $12.5 trillion, then the price per coin would get to $100,000. I don't believe that is too much of a stretch. Younger people increasingly prefer Bitcoin over gold, a trend that should continue in the future. And this makes sense, given that younger people are more tech-savvy and digitally adept. What's more, as the internet continues to grow in importance, looking for ways to store value digitally should become more popular.
Additionally, it's worthwhile to look at the sovereign debt market to support why Bitcoin's price should rise. In February, there was roughly $7.7 trillion worth of bonds outstanding with a real negative yield. Think about this for a second. Investors were actually paying borrowers to take their money, a whacky phenomenon that was spurred by ultra-loose monetary policy for most of the past decade. Higher interest rates have somewhat fixed this in 2022. But once the Fed pivots its rate-hiking schedule, after it has tamed surging inflation, and again takes an accommodative monetary stance, the situation of negative-yielding debt will most likely continue as interest rates drop.
What if some of this money that's in negative- and low-yielding bonds found its way to Bitcoin? This would surely boost the price over time.
Bitcoin's path to $100,000, which would equate to a roughly six-fold gain from today's price, is certainly going to be full of volatility. In fact, over the past decade, Bitcoin has experienced multiple declines of more than 50%. So if investors want to own this asset, they must adopt a long-term view, and mentally prepare for the inevitable ups and downs and continuing to hold through them.
