Bitwise: Why Bitcoin Will Rise to $500,000 or More and What Will It Take

As I write this memo Tuesday morning, Bitcoin has just hit a series of all-time highs in the past 24 hours and is currently trading at around $88,000. It is up about 100% so far this year and more than 25% since the historic election on November 5th.

The market may pull back as we publish this article — it went too high, too fast — but it feels like $100,000 is just around the corner.

Moments like these bring about a whirlwind of emotions. People who held Bitcoin before the November election are ecstatic, and rightly so. But many who didn’t feel as if they had missed out.

To the latter group, I want to say: it’s not too late for you to enter the market. In fact, it’s still early before Bitcoin breaks through $500,000.

Let me explain.

The Case for Bitcoin to $500,000 (or More)

First of all, it should be made clear that no one can guarantee that each Bitcoin will be worth $500,000. We don’t even know if it will break $100,000! Bitcoin prices fluctuate wildly, the outlook is uncertain, and a correction may occur at any time.

But in my opinion, $500,000 per coin is the correct dividing line between the early and late stages of Bitcoin, for a simple reason: it marks the moment when Bitcoin will “mature.”

As I discussed a few weeks ago, investing in Bitcoin is really a two-pronged investment. When you bet on Bitcoin, you are betting on:

1. As governments take on more debt and devalue their currencies, demand for store-of-value assets like Bitcoin and gold will increase.

2. As a means of storing value, Bitcoin will become more and more widely accepted, on par with gold.

The second bet is just another way of saying it’s not too late to enter the Bitcoin market. This bet is still valid. Here’s why.

A mature store of value asset looks like gold. No one makes a fuss when institutions allocate to gold, or when central banks take billions of dollars off their balance sheets to invest. You don’t read a lot of media reports skeptical of gold, nor do you see sitting US senators forming an anti-gold camp. Gold has already “made it.”

Not so with Bitcoin. Even after this latest rally, Bitcoin is still a work in progress. When pension funds and endowments make small investments in cryptocurrencies, it’s still considered news. The Labor Department is still warning 401(k) plan providers not to include Bitcoin in their portfolios, citing the need for “extraordinary caution.” And when big hedge fund investors express bullishness on cryptocurrencies, it still causes a stir.

The market has come a long way with the huge success of Bitcoin exchange-traded funds (ETPs) and the rise of policymakers who support cryptocurrencies, but until Bitcoin becomes as mundane as gold — widely held by central banks and institutions — it’s by definition not too late to get in.

So why $500,000? Well, today the gold market is $18 trillion and Bitcoin is about $2 trillion. That makes the store of value market about $20 trillion. When Bitcoin matures, it will at least share this market with gold.

There are about 20 million bitcoins in existence today—with the remaining 1 million to be created over the next century—so by the time Bitcoin reaches $500,000 it will have half the market share.

Until then, it's still early.

Conclusion: What It’ll Take for Bitcoin to Hit $500,000 (and Why I Think It’ll Go Higher)

What would it take for Bitcoin to actually reach $500,000? Among other factors, we would probably need those groups that are now widely allocated to gold to also allocate to Bitcoin. The biggest missing link in this equation is the central banks.

Today, governments hold about 20% of the world's gold reserves, compared to less than 2% of all Bitcoin. For Bitcoin to get close to the $500,000 mark, we need to see that gap close. It's a tall order, but we're already seeing some progress. Perhaps the biggest example here is Republican Senator Cynthia Lummis of Wyoming's plan to establish a national Bitcoin reserve in the United States, with the goal of purchasing more than $80 billion worth of Bitcoin with government funds. If we start to see that happen, $500,000 Bitcoin is entirely within reach.

But I think it will eventually go much higher. My $500,000 target is based on Bitcoin cannibalizing gold’s market share, when in reality I think it will expand the entire market. And it also assumes that the store of value market is static, which I think will grow rapidly as governments continue to borrow and print money.

Will we see Bitcoin go to $1 million? Or even higher? Absolutely. But $500,000 seems like a good place to start.