Author: Matt Hougan, Chief Investment Officer of Bitwise

Translated by: Luffy, Foresight News

One common mistake people make when evaluating Bitcoin is seriously underestimating its potential.

Last week, a financial advisor asked me a great question: Does the dollar need to collapse for Bitcoin to reach $200,000?

This is a good question because it reveals the fuzzy logic many people use when discussing Bitcoin. In my experience, they often say: Bitcoin is digital gold, and the U.S. is printing money on a massive scale, so Bitcoin is valuable.

This statement is not wrong; I have said similar things on CNBC. But it is a lazy way of thinking that conflates two different arguments. It leads people to severely underestimate the full potential of Bitcoin and the likelihood of its success. If you separate these arguments and consider them individually, you will have a better understanding of Bitcoin.

Argument 1: Bitcoin Will Succeed

When you buy Bitcoin, your first bet is that it will ultimately succeed. For me, this means that one day it will stand alongside gold as a mature and easily understood store of value held by all types of investors.

Over the past 15 years, Bitcoin has made tremendous strides toward this goal. It has evolved from being worth nothing to an asset valued at over $1 trillion, with 60% of large hedge funds globally, the largest asset management companies, and even some countries holding Bitcoin. It has gone through bull markets and bear markets, scandals and breakthroughs, and multiple regulatory challenges. Now, most people acknowledge that it will continue to exist.

But it is not yet "mature." Today, most institutional investors still do not hold Bitcoin; many financial institutions still prohibit Bitcoin transactions; the media still distrusts it. Many people still do not understand it, and you rarely hear such sentiments about gold.

A simplified zero-sum version of this argument is that Bitcoin will eat into the gold market. But I think a more likely scenario is that Bitcoin will gradually expand the size of the "store of value" market.

Bitcoin has a market cap of $1.3 trillion, which is 7% of gold's $18 trillion market cap. I do not know whether "mature Bitcoin" will be half the size of gold, equal to gold, or even larger. But I am confident it will not just be 7%.

Therefore, betting on Bitcoin is betting that it will continue to move from niche to mainstream along its current path. This has been the main driver of Bitcoin's astonishing returns over the past 15 years. I believe there is still significant room for Bitcoin to grow.

Argument 2: Governments Will Devalue Fiat Currency

The second bet when buying Bitcoin is that the U.S. and other governments will continue to print money and accumulate debt, leading to the devaluation of fiat currency. According to this reasoning, this not only increases the value of "store of value" assets like Bitcoin and gold but also encourages more investors to invest in such assets, further expanding the market.

The U.S. currently has $36 trillion in debt, increasing by $1 trillion every 100 days. This year, the U.S. will spend $900 billion on debt repayment, with interest payments being one of the largest expenditures in the federal budget. The Congressional Budget Office estimates that by 2054, the debt will reach $142 trillion.

I believe that such massive debt and money printing will expand the size of the store of value market as investors seek a safe haven to avoid currency devaluation. Can the current $20 trillion store of value market become $50 trillion in 10 years? Even $100 trillion?

It is evident that if the size of the store of value market doubles in the next 10 years, and Bitcoin retains only its 7% share of that market, then the price of Bitcoin will also double.

Notably, many people in the Bitcoin community (myself included) believe that Bitcoin's use extends beyond traditional "store of value" purposes. For example, I believe Bitcoin will one day be used as an alternative to national currencies for settling international payments. Any additional use case like this would further increase Bitcoin's value.

Conclusion

The importance of these arguments lies in the fact that they are both overlapping and independent.

What I mean by independent is that you only need one of them to be a successful investor.

Imagine that Bitcoin captures 25% of the current gold market, with everything else remaining the same. No market expansion, no new use cases, and no concerns about rising debt. In this scenario, Bitcoin would reach $214,000, about four times its current level.

Or imagine that Bitcoin's market share does not grow, but the store of value market doubles; then Bitcoin would also double.

If both scenarios occur, then a miracle would happen. I believe this is the most likely scenario.

So, my answer to my advisor friend is no, Bitcoin does not need a dollar collapse to reach $200,000. It only needs to capture a small portion of the existing gold market to achieve that goal. As governments continue to print money and Bitcoin matures, it may even surpass that level.

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