For at least 3 years I have been talking about the fact that the herd is coming. What I meant with that, is that I have been observing for years that institutional investors were getting ready to get into Bitcoin and that the cryptocurrency would shoot through the roof once they would enter the market. And this year it finally happened! The herd is here, the professional investors are now entering the market and the price has started to climb up fast.
In early February this year I wrote a blog post when Bitcoin broke through $10,000 and why I thought that this could be the beginning of a new bull market. I touched upon COVID-19 in this post as well (long before most people paid any attention to the virus), but I did not realize that COVID would slow down the bull market by about 6 months.
Right after global lockdowns started in March Bitcoin actually crashed hard (together with the stock market), but it also recovered quickly. By early October the real new bull run really started and since then the Bitcoin price went up almost 3 times. I think this is the beginning of an epic bull run that could lead to Bitcoin prices that hardly anybody can imagine right now. If you are not in Bitcoin yet because you thought it was too risky, now may be a good time to get in (not investment advice though!). In my opinion Bitcoin is de-risked with professional investors buying up all the newly mined coins and Bitcoin at $28,000 might be a safer investment long term than Bitcoin at $6000 at the beginning of the year.
What changed? I believe the most important factor is that some well known investors paved the way for others to invest and make it less risky to do so. At the beginning of the year investing in Bitcoin may have cost a professional investor his or her job, right now not investing in Bitcoin may get you fired. It’s a completely different investment environment. Over the past couple of weeks there was another announcement of a new large fund investing in Bitcoin almost every day.
It all started in the spring of this year with Paul Tudor Jones announcing that he put a small percentage of his net worth into Bitcoin. That opened people’s eyes, because PTD is highly regarded. Not long after that Microstrategy’s Michael Saylor announced that his firm had invested $450 million of its reserve assets into Bitcoin. This was huge news, MicroStrategy was the first publicly listed company that did this and the public markets liked it: its stock price almost tripled in 4 months time after the announcement. Not only that, MicroStrategy doubled its reserves during that time because the Bitcoin price doubled. They basically made in 6 months what the company would have normally made in 10 years. Michael Saylor became a hero in the Bitcoin world and started doing almost daily podcasts and video interviews, in which he convinced a lof others that having Bitcoin as a reserve asset is less risky than keeping it in dollars.
Then in October all of a sudden the announcements started. Just a few examples of financial news headlines since then:
– Billionaire Hedge Fund Investor Druckenmiller Says He Owns Bitcoin
– JP Morgan saying that investors are selling gold for BTC
– PayPal Enables Users to Buy, Hold and Sell Cryptocurrency
– Citibank Analyst Says Bitcoin Could Pass $300K by December 2021
– BlackRock’s Chief Investment Officer Says Bitcoin Could Replace Gold
– Guggenheim Fund Reserves Right to Put Up to 10% in Bitcoin Trust
– MassMutual announces a $100 Million Purchase
– Ruffer investing $740M in BTC – and selling Gold for that
– Jim Cramer buying BTC and talking about it on TV
– Fidelity CEO saying that there is a pipeline of institutional investors looking to get into Bitcoin custody
An avalanche of positive news for Bitcoin is coming from some of the top financial institutions in the world. I personally think the MassMutual purchase of $100 million of Bitcoin may turn out to be the most important one. Not because of the amount, that is actually quite modest, but because this is the first life insurance company getting into this new asset class. They would have to get SEC approval for this, which is quite an effort in itself, and now others will follow. Moreover, once you invest $100 million and that investment is going up 50% in 3 weeks you will likely start to invest more.
The herd is here and these investors won’t go away anymore. Right now Bitcoin is at about $530 billion in market cap, it just flipped Visa and is now the same size as Berkshire Hathaway. It still about 20 times smaller than Gold, but I believe that within 5 years (=after the next Bitcoin halving) Bitcoin might flip Gold as well. The higher Bitcoin goes, the more institutions will invest. Look at BlackRock for example, their Chief Investment Officer publicly said that Bitcoin could replace Gold, but the firm does not buy Bitcoin yet for its funds. Why? Simply because Bitcoin is still too small for them. But not long anymore!
I am happy that my predictions are coming true. I spent years studying Bitcoin on a daily basis and saw the writing on the wall for years, but it was hard to predict exactly when it would happen. In 2017 I predicted that Bitcoin would hit $150,000 in 2021 and I still stand by that prediction. It could be a few months later of course, but it could also happen by next summer already. It all depends on the speed at which new investors enter the market. The nice thing about having the Bitcoin blockchain is that you can calculate how long it might take to get to this price (because all transactions are visible on the blockchain).
At this moment the market cap of BTC goes up by about $3.50 for every $1 that is invested in the market (and this ratio is going up). At a $150K Bitcoin price the market cap would be around $2.2 trillion, so assuming that the ratio remains stable we would need about $500 billion in new money inflows. Last week about $10 billion of new money was invested into Bitcoin, so you can do the math: even at this speed we’ll hit $150,000 at the latest by December 2021. If the speed increases we could be above $200,000 by this time next year. Not many liquid assets will give you a 6-8X return in 12 months.
And after that? Looking at what is happening in the markets now I am extremely bullish and think we’ll likely see $400-500,000 prices when more institutional investors come in, simply because there is so much demand and very limited supply. In case Central Banks would put part of their reserves into Bitcoin we will even get much higher prices (in the millions of dollar per coin), but for now that is not happening yet. I am glad that after the 2017 retail rally this new bull market is led by institutions. They won’t panic sell like retail investors did in 2017-18, so likely the dips will be smaller as well. Don’t get me wrong, we will still see a lot of volatility with the price going down 20-30% every now and then. But likely not the 50%+ drawdowns like we saw in the last bear market, where BTC was actually down more than 80% at one point. The sky is the limit right now!
Disclaimer: As always, do not take this as investment advice and never put more in than you are willing to lose. Do your own research!
It is interesting that BTC has such a small market cap compared to FX, Bonds, and even Gold….. In (m)any other asset classes the likes of MS and Co (ideally GS)making such bold predictions would indicate a likely top!
This recent move has been well sustained and correction and consolidation is happening through time not through price which is bullish.
Great article and it makes me more bullish than ever on bitcoin.
One point I don’t get though: “the market cap of BTC goes up by about $3.50 for every $1 that is invested in the market”.
Circulating supply times price = market cap.
An extra dollar in price divided by circulating supply would the determine this factor, wouldn’t it?
That would be 28k/18.5k is appr 1.50$, not 3.50$…..
Mooi en interessant stukje tekst Marc.
Ik deel je mening wat betreft BTC en zijn toekomst.
Hi Gijs, I am still not convinced. You may explain what is the underlying value of btc. How do you see the trajectory of btc as a generic global payment solution (for common b2c / b2b transactions)? How about the high energy cost for mining btc?
Fantastic information as always, many thanks for being a huge inspiration for me as strategy manager of CARUS-AR.
I never invested in bitcoin in the early days. . because it was too complicated. . but after you blogged about QTBC. . allowing me to get easy bitcoin exposure in the Canadian markets I bought some of that right away. It had a rocky start but as you can see is doing great now and tracking more smoothly with the increased volume. Also found I could easily get BTC and Ethereum exposure on Wealthsimple crypto app. I’m waiting for a pullback to sell and then double my investment size in both those platforms once prices rise again. So I’ll welcome a 30 or 40% pullback if it comes.
@L. Kruptos, you can find the ratio of 3.5 in Willy Woo’s blockchain reflexivity charts. See this tweet for example https://twitter.com/woonomic/status/1344189627997949952
@Marcel Wiedebrugge: For the underlying value of BTC and other related questions for people relatively new to BTC it is best to read Saifedean Ammous’ The Bitcoin Standard (also available in Dutch now). It covers all the fundamentals that are necessary to understand why BTC has value. Even for me it was an eye opener when I first read it 3 years ago. I don’t see BTC as a global payment solution until it is much less volatile, although it is now already useful for very large amounts of money (e.g. transferring $10 million from one country to another, because it is cheap and instantaneous). Some countries already use it for import/export to evade US trade sanctions (Iran, Venezuela and Turkey). Regarding high energy costs I normally refer to this article by Bill Tai, he can explain it more eloquently than I can: https://medium.com/@billtai/earths-greening-and-proof-of-work-satoshi-is-smiling-13dbf059025
@Daniel Good to hear you made some money on QBTC already. I don’t trade, only HODL, but if you time your buying and selling right you can increase your stack a lot. If you time it wrong though… 🙂
Hi Marc, great reading as always. Your comments and point of view are quite interesting! Good job!
Hi Marc, thnx for this great article!
I have a question for you: would you please read my blog about Stock to Flow model? I hope to enhance it and you as a Bitcoin Mining Entrepreneur are in a position to really examine my ideas about how mining could effect the Bitcoin Market Price. Thnx in advance!
Blog (in Dutch):
It’s fairly simple, mining is based on an equilibrium of cost & price. The least efficient miners stop mining when the bitcoin price goes down until there is a new equilibrium. If the price goes up new miners will enter the market until the last miners that entered can just break even. After the halving the flow goes indeed down by 50%, so only the top 50% of most efficient miners will stay in the business. The cost price of the flow is always the same as the market price, otherwise miners stop mining or new miners enter the market. So as far as I can see there is nothing new in your theory, because price equals marginal cost of production.
Since I watched your video on YouTube from Financial Focus (you were running with your dad) you opened my eyes. All I wan’t to say is: thank you for introducing me into the bitcoin world. It’s amazing and I love it. Thanks al lot!