Those groups that widely allocate gold today will allocate Bitcoin.
Written by: Matt Hougan, Chief Investment Officer of Bitwise
Translated by: 0xjs@Golden Finance
As I write this memo on Tuesday morning, Bitcoin has just set a series of historical highs in the past 24 hours, currently trading at around $88,000. So far this year, it has risen by about 100%, and since the historic election on November 5, it has increased by more than 25%.
By the time we publish this article, the market may pull back — it has risen too quickly and too high — but it feels like $100,000 is just around the corner.
Such moments can trigger emotional fluctuations. Those who held Bitcoin before the November election are understandably ecstatic. But many who do not hold it feel as if they have missed the opportunity.
To the latter group, I want to say: it’s not too late for you to enter. In fact, it’s still early before Bitcoin breaks $500,000.
Let me explain.
Reasons for Bitcoin to Rise to $500,000 (or Higher)
First, let me clarify: no one can guarantee that each Bitcoin will be worth $500,000. We don’t even know if it can break $100,000! Bitcoin's price is highly volatile, and its future is uncertain, with potential for a pullback at any time.
But in my view, $500,000 is the correct dividing line for Bitcoin in its early and later stages, and the reason is simple: it marks Bitcoin's transition to "maturity."
As I discussed a few weeks ago, investing in Bitcoin is actually a two-fold investment. When you bet on Bitcoin, you are betting on:
The demand for value storage assets like Bitcoin and gold will increase as governments accumulate debt and devalue their currencies;
Bitcoin will increasingly be accepted as a means of value storage, standing alongside gold.
The second bet is essentially another way of saying that it’s not too late to enter Bitcoin now. This bet remains valid for the following reasons.
A mature value storage asset looks like gold. When institutions allocate gold, or when central banks pull billions of dollars from their balance sheets for investment, no one is surprised. You won’t read a lot of skeptical media reports about gold, nor will you see sitting U.S. senators forming an anti-gold coalition. Gold has already "made its mark."
Bitcoin is not like that. Even after this latest surge, Bitcoin is still developing. When pension funds and endowments make small investments in cryptocurrency, it is still considered news. The U.S. Department of Labor continues to warn 401(k) plan providers against including Bitcoin in their portfolios, citing the need for "extra caution." Moreover, when large hedge fund investors express optimism about cryptocurrency, it still causes a stir.
With the tremendous success of Bitcoin exchange-traded products (ETPs) and the rise of policymakers supporting cryptocurrency, the market has made significant progress. But until Bitcoin becomes as mundane as gold — widely held by central banks and various institutions — it is, by definition, still early to enter.
So why $500,000? Well, the current gold market is valued at $18 trillion, while Bitcoin is about $2 trillion. This makes the total value storage market approximately $20 trillion. When Bitcoin matures, it will at least share this market with gold.
Currently, there are about 20 million Bitcoins — the remaining 1 million will be issued over the next century — so when Bitcoin reaches $500,000, it will capture half of the market share.
Until then, it’s still early.
Conclusion: What Conditions Are Needed for Bitcoin to Reach $500,000 (and Why I Believe It Will Go Higher)
What conditions are needed for Bitcoin to truly rise to $500,000? Among other factors, we may need those groups that widely allocate gold today to also allocate Bitcoin. The biggest missing link in this equation is the central banks.
Currently, governments hold about 20% of the world's gold reserves, while the proportion of total Bitcoin held is less than 2%. To bring Bitcoin closer to the $500,000 price point, we need to see this gap narrow. It’s a daunting task, but we have already seen some progress. Perhaps the biggest example is U.S. Republican Senator Cynthia Lummis's plan to establish a national Bitcoin reserve in the U.S., aiming to purchase over $80 billion worth of Bitcoin with government funds. If we start to see this happen, a $500,000 Bitcoin could very well be achievable.
But I believe it will ultimately rise even higher. My $500,000 target is based on Bitcoin eating into gold's market share, but in reality, I believe it will expand the entire market. Moreover, this target assumes that the value storage market is static, whereas I believe it will grow rapidly as governments continue to accumulate debt and print money.
Will we see Bitcoin rise to $1 million? Even higher? It’s absolutely possible. But $500,000 seems like a good starting point.
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