The Case For $10,000 Bitcoin
You’ve probably read it on a multitude of news outlets, but the decentralized virtual currency Bitcoin is on a seemingly unstoppable tear, rising over 54% in value the first two weeks of August alone. As of late August, its value was at $4,625 per coin. Taking an even wider step back, Bitcoin has outperformed virtually all major asset classes, rising over 520% in a one-year period.
But is this staggering trend sustainable, or are we merely in a bubble? There are a number of drivers behind a doubling of the value of the currency – and I think there’s a case for a $10,000 coin in our near future.
It’s important to note just how scarce Bitcoin is. There are currently a little over 16.5 million Bitcoins in circulation, representing about $71 billion. That may seem like a lot, but compare that to how much currency is in circulation in the world – about $5 trillion worth – and Bitcoin is just a blip in the currency radar.
On top of this, it is estimated that some 25% of all Bitcoins mined are lost forever, either because of improperly generated wallets, lost keys, discarded hard drives or carelessness.
So what does this scarcity mean, really? For starters, it limits the total possible supply of Bitcoin that can be owned. This means that if the demand continues to increase, the price must go up.
With the supply of Bitcoin limited, the reality is that enough people have to want it and use it in order for its price to go up. This presents a bit of a problem for some people, like billionaire investor Howard Marks, who said on CNBC, “There is no intrinsic value in Bitcoin.”
There are definitely two sides to the debate about the value of Bitcoin, however: It’s no accident that Bitcoin’s total market value is higher than the likes of Netflix, General Motors and American Express, seemingly eating entire large cap companies’ worth of market share growth in just a few weeks.
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So what exactly is powering this massive surge in growth? Below are a few reasons I think Bitcoin has started to gain larger adoption, and why this trend has good potential to increase over the foreseeable future.
• Utility Value. Perhaps the largest use case for Bitcoin is as a fungible instrument: It can be used like fiat currency, to buy and sell goods of value as a form of currency exchange. It is also very fast and inexpensive to move in comparison to traditional banking.
• Increased Accessibility. Bitcoin is becoming increasingly easier to purchase and trade. CoinMarketCap lists over 75 exchanges that actively traded at least $1 million in Bitcoin within the last 24 hours, and according to Coin ATM Radar, there are over 1,400 Bitcoin ATMs currently operating, which represents a 100% increase in circulation compared to just a year ago.
• Highly Liquid. Due to very high daily trade volumes and a strong open order book, Bitcoin can be purchased and sold almost instantly in relatively large amounts. It can be converted to other currencies or to a local currency at a moment’s notice.
• Store Of Value. Although it wasn’t designed as a store of value, Bitcoin has proven to be a fairly good instrument to store or increase value over its lifetime. Just $1,000 invested in 2010 would be worth of $70 million today.
• Non-Banked. Cade Metz made a case in a Wired article about how Bitcoin might thrive in the developing or emerging markets where local currency may be unstable due to political issues or where the majority of the population is non-banked. In these areas, Bitcoin may be the best alternative to fiat, since all that is needed is an internet-connected device such as a smartphone.