To say that Bitcoin (BTC 0.50%) has been on a tear in 2023 would be an understatement: The world's leading cryptocurrency is up more than 70% so far this year as of April 20. This gain not only easily outpaces the tech-heavy Nasdaq Composite Index, but it is also a greater rise than Ethereum, another popular digital asset.
After eclipsing the $30,000 mark, investors might be thinking of a much larger target to set their eyes on. Can Bitcoin reach $100,000? While it might not happen this year, there is a very real possibility that it will occur in the next five. Here's why.
All eyes on the Fed
Just around the time when the Federal Reserve indicated that inflation might not be so transitory after all, Bitcoin peaked at nearly $69,000, in November 2021. Throughout 2022, when the central bank hiked interest rates at the fastest pace in history, the digital currency got crushed, losing 65%, a much bigger loss than the stock market and about in line with the overall cryptocurrency market.
Investors can glean one very important insight from this type of price action. For now, it's evident that Bitcoin trades more like a growth tech stock, influenced by macroeconomic news like recent inflation data or the Fed's actions. At the start of this year, risk assets have generally performed well, a possible sign that investors think rate hikes are coming to an end soon.
And Bitcoin is up significantly since the start of the regional-bank fiasco more than a month ago. Perhaps investors also view this top digital asset as a safe and reliable holding amid the turmoil. While these catalysts can drive greater demand for Bitcoin, I don't think they are enough to push the price to $100,000, especially not in 2023.
CRYPTO: BTC
Key Data Points
Bitcoin as a store of value
These catalysts do, however, bring more attention to Bitcoin, which should benefit over the long term as more dollars flow in as well, despite the inevitable ups and downs. I think Bitcoin's most compelling use centers on it becoming a more widely adopted store of value, something that individual and institutional investors will propel. And the growing number of businesses that provide easy access to buying Bitcoin will make it more accessible to the masses.
But this raises the question: What fundamental reason is there that would make investors want to buy and hold Bitcoin over extended periods of time? Bulls point to one thing and one thing only, and that is the fact that there will only ever be 21 million coins in circulation, an absolutely finite cap that should support a higher price many years from now. And in about a year, Bitcoin's block reward for processing transactions will be cut in half, usually a positive indicator for its price trajectory.
What's more relatable is Bitcoin's superiority when inflation is still soaring and governments all over the world -- including the U.S. -- have debased their currencies throughout history. More dollars chasing fewer bitcoins bodes well for the latter's future price. And although Bitcoin won't move in lockstep with the consumer price index, its total return of nearly 48,000,000% (since July 2010, based on the earliest data provided by coinmarketcap.com) certainly proves that it not only preserves purchasing power, but also raises it.
According to consulting firm McKinsey & Co., the total global net worth was more than $600 trillion at the end of 2021. This means that Bitcoin's current market cap of $590 billion accounts for less than 0.1% of this astronomical value, even after its huge run-up this year. This means there is still a very long runway for the crypto to find itself in more portfolios.
To be fair, to get from Bitcoin's current price to $100,000 in five years, there needs to be regulatory clarity, especially in the U.S., allowing the country to lead development of the global framework for this asset class.
Even more important, people just need to learn more about Bitcoin's value proposition in the broader financial landscape. Once this happens, it's hard not to be bullish.
