Bitwise CIO: The Dual Boost to Bitcoin’s Value
When assessing Bitcoin, many people tend to significantly underestimate its potential.
Last week, a financial advisor posed a thought-provoking question: does Bitcoin need a collapse of the dollar to reach $200,000?
This question highlights a common fallacy in discussions about Bitcoin, often stemming from vague reasoning. Many argue that Bitcoin is “digital gold” and that the U.S. is printing money at an alarming rate, thereby adding value to Bitcoin.
While there’s truth in this statement, it oversimplifies two distinct arguments, leading to a misunderstanding of Bitcoin’s full potential. By separating these arguments, we can better comprehend Bitcoin’s future.
Argument 1: Bitcoin Will Succeed
Investing in Bitcoin is fundamentally a bet on its eventual success. For me, this means Bitcoin could one day stand alongside gold as a mature and easily understood store of value embraced by all types of investors.
Over the past 15 years, Bitcoin has made remarkable strides toward this goal. It has evolved from worth virtually nothing to an asset valued at over $1 trillion, with 60% of large hedge funds, the largest asset management firms, and even some countries holding Bitcoin. It has weathered bull markets and bear markets, scandals and breakthroughs, along with various regulatory challenges. Today, most acknowledge that Bitcoin is here to stay.
However, it’s not yet “mature.” Most institutional investors still do not hold Bitcoin, many financial institutions continue to restrict Bitcoin transactions, and media skepticism remains. In contrast, gold enjoys a level of understanding that Bitcoin has yet to achieve.
A simplified, zero-sum version of this argument posits that Bitcoin will cannibalize the gold market. However, I believe a more likely scenario is that Bitcoin will gradually expand the overall “store of value” market.
Currently, Bitcoin’s market capitalization stands at $1.3 trillion, which is just 7% of gold’s $18 trillion market cap. I don’t know if a mature Bitcoin will equal half, match, or exceed gold’s value, but I am confident it won’t remain merely at 7%.
Thus, betting on Bitcoin is essentially betting that it will continue its trajectory from niche to mainstream. This has been the primary driver behind Bitcoin’s impressive returns over the past 15 years, and I believe significant growth lies ahead.
Argument 2: Governments Will Devalue Fiat Currencies
The second bet involved in purchasing Bitcoin is the expectation that governments in the U.S. and elsewhere will continue to print money and accumulate debt, leading to fiat currency devaluation. This reasoning supports the increased value of “store of value” assets like Bitcoin and gold, while also attracting more investors to these assets, further expanding the market.
The U.S. currently has $36 trillion in debt, adding about $1 trillion every 100 days. This year, the cost of servicing this debt will reach $900 billion, making interest payments one of the largest expenditures in the federal budget. The Congressional Budget Office estimates that by 2054, the debt could soar to $142 trillion.
Such massive debt and money printing are likely to grow the store of value market, as investors seek a refuge from currency devaluation. Can the current $20 trillion store of value market double to $50 trillion or even $100 trillion within a decade?
Clearly, if the store of value market doubles in the next ten years and Bitcoin retains its 7% market share, its price will also double.
It’s also noteworthy that many in the Bitcoin community, including myself, believe Bitcoin’s utility extends beyond traditional “store of value” functions. For instance, I envision Bitcoin one day serving as an alternative currency for international settlements. Any additional use case like this would further enhance Bitcoin’s value.
Conclusion
The importance of these arguments lies in their interdependence and independence.
By “independent,” I mean that you only need one of these scenarios to be a successful investor.
Imagine if Bitcoin captured 25% of the current gold market, with all else remaining constant—no market expansion, no new use cases, and no rising debt concerns. In this scenario, Bitcoin could reach $214,000, roughly four times its current level.
Alternatively, suppose Bitcoin’s market share remains unchanged, but the store of value market doubles; in that case, Bitcoin would also see its value double.
If both scenarios unfold, we could witness extraordinary outcomes. I believe this is the most likely situation.
Therefore, my answer to the advisor friend is no, Bitcoin does not require a collapse of the dollar to reach $200,000. It only needs to capture a small portion of the existing gold market to achieve this target. As governments continue to print money and Bitcoin matures, it may surpass this level.