Could Bitcoin 100x? This Billionaire Investor Thinks So

Bitcoin ( BTC -0.98% ) is without doubt one of the fastest-appreciating property within the historical past of the world. 

The unique cryptocurrency was invented by the nameless Satoshi Nakamoto in 2009, and reached a market worth of $1 trillion by 2021, although it has since fallen beneath that mark.

The query of how a lot Bitcoin, as an asset class, must be price has lengthy been debated amongst its backers, and is entrance and middle to Bitcoin’s objective, which most bulls are likely to see as a type of digital gold.

Like gold, a valuable steel whose quantity is restricted by its rarity, the provision of Bitcoin is capped at 21 million items, although all Bitcoins will not have been mined till round 2140 due to the mathematical halving of Bitcoin rewards for miners.

Due to the argument that Bitcoin is a type of digital gold, many imagine that Bitcoin’s whole worth ought to approximate that of all of the gold on this planet, which is round $12 trillion at present. With Bitcoin’s market cap at $770 billion presently, reaching the entire worth of the world’s gold would give Bitcoin holders a return of greater than 1,600%, however one billionaire investor thinks Bitcoin must be price far more than that. 

Transfer over gold

On the Bitcoin 2022 Convention in Miami earlier final week, Peter Thiel, the billionaire co-founder of Paypal and early investor in Fb, argued within the convention’s keynote deal with that the worldwide fairness market, not gold, is the very best analog for Bitcoin’s market cap potential.

Thiel mentioned, “The true competitor for Bitcoin shouldn’t be Ethereum (CRYPTO: ETH) — that is a cost system. It is not even gold. It is one thing just like the S&P 500. It is the inventory market as an entire.” He continued, “The benchmark for Bitcoin shouldn’t be gold however equities, and the query is why cannot there be parity between Bitcoin and equities. Why should not we be speaking about one thing extra like 100 to 1?” The 100-to-1 was a reference in his slide to world equities being price $115 trillion, whereas Bitcoin is price rather less than $1 trillion.

Is Thiel proper about Bitcoin?

Thiel has been a key participant in the best way cash features within the world economic system since 1999 when he co-founded Paypal, so it is price listening to his ideas on Bitcoin, the cryptocurrency that some count on to be the subsequent iteration of cash. However it’s essential to know that the argument that Thiel is making for Bitcoin reaching $115 trillion is not primarily based on its intrinsic worth. It is an argument that Bitcoin must be an equally legitimate asset class for institutional buyers, and subsequently it ought to obtain an equal stage of funding. Thiel underscored this later in his deal with when he attacked enterprise titans together with Warren Buffett, JPMorgan Chase CEO Jamie Dimon, and Blackrock CEO Larry Fink, saying, “If in case you have these massive institutional buyers, they have to be allocating a few of their cash to Bitcoin after they handle state pension funds within the U.S., or they get trillions of {dollars} in property. After they select to not allocate to Bitcoin, that may be a deeply political alternative. We have to push again on them.”

As Thiel sees it, Bitcoin is not but price $115 trillion as a result of cash managers aren’t investing sufficient in it, and he calls {that a} political alternative as a result of the well-known libertarian sees Bitcoin as a campaign towards fiat currencies, or authorities management.

However there’s one thing backwards in regards to the argument. International equities, that means all of the publicly traded corporations on this planet mixed, are price $115 trillion as a result of these equities signify companies, like Apple or Buffett’s Berkshire Hathaway, that generate trillions in annual income. They don’t seem to be price $115 trillion as a result of institutional buyers have trillions of {dollars} they should put someplace, and so they’ve arbitrarily chosen equities.

Thiel additionally ignores the truth that Bitcoin is not a productive asset in the best way that equities are. Its valuation, like gold and even an NFT, is an article of religion. A Bitcoin is simply price round $40,000 at present as a result of a gaggle of individuals, lots of whom are speculators, have determined that it’s. There’s little sensible worth to it.

What it means for Bitcoin

Bitcoin’s founder is nameless, and there isn’t any CEO to pitch the cryptocurrency. In that void, Thiel’s keynote deal with takes on added significance as he is one of many highest-profile backers of the cryptocurrency. However the speech was equally notable for what it lacked as for what Thiel mentioned.

He by no means as soon as addressed Bitcoin’s utility as a medium of change. In reality, he ceded that high quality to Ethereum, arguing that Bitcoin was the “gold” of crypto, representing a retailer of worth, whereas Ethereum was the “Visa” of crypto, used to make monetary transactions.

Most of Thiel’s speech was spent trashing Bitcoin detractors and making the case for the $115 trillion valuation. Thiel performed to the lots by pumping the foreign money and providing the astronomical $115 trillion value goal. Like others earlier than it, the speech revealed that Bitcoin could also be higher understood as a cult quite than an asset class. In different phrases, it is an article of religion — and one that may make you wealthy in the event you persuade sufficient folks to purchase it — quite than an object of actual worth. His main argument for Bitcoin was extra political than financial. A well known libertarian, he sees Bitcoin as a strategy to escape authorities management and skirt the deflationary nature of fiat foreign money and taxes.

That political level is a well-worn argument for Bitcoin by now, and it is true that Bitcoin has been utilized in international locations like Venezuela which have been embroiled in civil unrest and hyperinflation. However that is a lot totally different from Bitcoin substituting for secure currencies just like the greenback.

It is also notable that Bitcoin tends to commerce as a dangerous asset quite than a retailer of worth, notably plunging when the conflict in Ukraine broke out. When buyers “flee to security,” they flee from Bitcoin. 

The place Bitcoin’s value goes from right here is anyone’s guess, however the tailwinds that supported its rise in 2020-2021 like pandemic lockdowns and the rise in cash provide are actually fading. 

Thiel appears to imagine that the subsequent important rally in Bitcoin would require buy-in from institutional buyers, however there are two main obstacles to that occuring anytime quickly. The crypto is simply too unstable for many cash managers to spend money on, and Bitcoin has but to show why it must be price $1 trillion, not to mention $115 trillion.