There's not a roller-coaster ride in financial markets that comes close to being as scary as the world of cryptocurrencies. Characterized by extreme boom and bust periods, this asset class isn't for the faint of heart.
The past couple of years have proven this point. The overall market for cryptocurrencies roughly tripled in 2021, only to give back all those gains in 2022. This year, it's experiencing a resurgence. And investors might be looking closely for any buying opportunities.
Because it is the oldest cryptocurrency, Bitcoin (CRYPTO:BTC) has benefited from a first-mover advantage and increasing popularity over time, even though it hasn't been a straight line up and to the right. It has rallied an impressive 82% in 2023, but can it rise 10-fold in the next 10 years?
Here are three must-know reasons I think this top digital asset has the potential to skyrocket in the next decade.
Increased institutional interest
Unlike most traditional asset classes, like stocks, bonds, or real estate, Bitcoin is unique in that its first wave of adoption came from retail investors, as opposed to large institutions. But over the next 10 years, I think it's probable that more institutions will want to start buying and owning Bitcoin.
Big public corporations, like Block and MicroStrategy, hold some of their cash balances in Bitcoin. Investment funds, like Ark Invest, own it. And even some countries hold some of their reserves in Bitcoin.
An expanding ecosystem of financial services can help propel institutional adoption. Moreover, as the regulatory uncertainty surrounding Bitcoin and cryptocurrencies dissipate, these larger players will become more comfortable using it.
There will only ever be 21 million bitcoins in existence. This fixed supply cap means that at a fundamental level, the digital asset's price will only rise if there is more demand for it. Because institutions control enormous amounts of capital, even a tiny fraction of this money flowing into Bitcoin will catapult its valuation.
The fiat fiasco
Another reason to be bullish on Bitcoin has nothing to do with it directly, but more to do with the state of the current financial system. The U.S. government has more than $31 trillion of debt outstanding, a figure that has grown steadily over time, although the increase has been more pronounced in the past decade. And the M1 money supply (all money in checking and savings accounts), has soared as well, even though it has come down a bit in the last year.
To be fair, the Federal Reserve has aggressively hiked interest rates to curb inflationary pressures, known as quantitative tightening, and it appears to be working. But because of the huge amount of debt the U.S. has -- as well as other major national governments -- I just don't see a situation where interest rates can stay elevated for too long. Net interest payments already make up 8% of the annual U.S. budget.
This means that central banks will likely resume printing money to monetize their huge and growing debt burdens, which lowers fiat currency's value relative to Bitcoin's fixed supply. As more people realize this dynamic, I think they'll be compelled to store at least a little bit of their wealth in Bitcoin.
Better than gold
Gold has long been viewed as one of the best stores of value, mainly because it's a beautiful, shiny metal, and it's extremely rare. To be clear, its value isn't derived from its industrial uses. People think it's worth something because everyone else thinks it's worth something.
Bitcoin has lots of advantages over gold. While gold has a much longer history, Bitcoin is absolutely finite, is more portable than gold, is easily divisible, and can be used in a growing number of transactions seamlessly. It's purely digital, though, so some older people who control most of the nation's wealth probably aren't as comfortable with it as the younger population.
In the next decade, as knowledge about it grows, Bitcoin could capture half the valuation of the $12 trillion gold market. At $6 trillion, Bitcoin's valuation would be about 10 times more than it is today. I believe this is a reasonable forecast.
