When it comes to predicting the future price of bitcoin (CCC:BTC), it’s almost as if the goal is to be as outlandish as possible. The sky’s the limit.
In my most recent article on Dec. 1, I suggested that it was too early to call for bitcoin prices of $50,000 to $100,000. That’s especially true if you think it will happen by the end of 2021.
At the time, it was trading just below $19,000. As I write this, it’s approaching $23,000.
Its momentum seems unstoppable. Remember, it closed 2019 at $7,220. With less than two weeks left in a dreadful 2020, it’s up 213%.
The reality is that the future of bitcoin prices is in the hands of institutional investors.
Here’s why I feel this way.
Bitcoin at $1 Million Seems Insane
InvestorPlace’s Matt McCall recently explained how bitcoin could get to $1 million, a price that would make Berkshire Hathaway’s (NYSE:BRK.A, NYSE:BRK.B) Class A shares look like a penny stock.
“[S]ome high-profile individuals have stuck their neck out to make this pronouncement,” McCall stated on Dec. 17.
“Most notably, Raoul Pal, the former Goldman Sachs hedge-fund manager, stated in an interview with Stansberry Research that “an enormous wall of money” could pour into the cryptocurrency. Moreover, Pal believes that this wave could see bitcoin hitting seven figures in five years’ time.”
This enormous well of money Pal speaks of are the big institutional investors of the world.
In my last article, I mentioned some of Ray Dalio’s arguments why bitcoin wasn’t the panacea asset everyone thinks it is. In my opinion, his best point was that he couldn’t see big institutional investors or large multinational companies using it when they can hold reserve assets such as gold or the U.S. dollar.
Now, imagine if Dalio changes his tune and goes long bitcoin. His hedge fund, Bridgewater Associates, manages $236 billion in assets. If Bridgewater committed 10% of its assets under management to bitcoin, we’re talking about a position of almost $24 billion.
According to CoinMarketCap, the total bitcoin market capitalization is $417 billion. So, a $24-billion position would account for almost 6% of the world’s bitcoin.
This is where it gets tricky.
Is Bitcoin Really Capped at 21 Million?
CoinTelegraph contributor Benjamin Pirus recently discussed the bitcoin cap of 21 million and whether it was a hard-and-fast limit or something ultimately more flexible. He quoted Canadian economist David Rosenberg.
“Everybody seems to believe that we’re going to get to that 21 million cap on the supply constraint, but there’s really nothing in the protocol to suggest that the supply of Bitcoin can’t go up once we hit that limit,” Rosenberg said.
Pirus suggests that Rosenberg believes that those bullish on bitcoin haven’t a clue about the future supply.
Let’s assume that the cap of 21 million is impenetrable. For Dalio to get his $24-billion position, every passing day costs him more money due to the finite supply.
Now extrapolate that by the world’s top 100 institutional investors. At the end of 2019, these investors controlled $20.1 trillion in global assets. Bitcoin, at its current market cap, would account for just 2% of these assets.
If all 100 of these investors got on the bitcoin bandwagon, you can be sure that the price would immediately skyrocket well beyond $100,000, perhaps to seven digits as my colleague suggests could happen.
Rosenberg doesn’t believe the 21 million bitcoins is a hard cap. I honestly don’t know enough to speculate either way, but even if it doubled to 42 million or even 84 million, a big buy-in from institutional investors would almost certainly put significant upward pressure on its price.
The Bottom Line
McCall makes an additional argument on why the demand for bitcoin and altcoins will increase in the years ahead. He believes that the wealth that passes from baby boomers to millennials will be put into these non-traditional forms of investment rather than stocks and bonds.
UK-based Nickel Digital Asset Management recently published a sponsored content article discussing bitcoin’s move in 2020.
“Bitcoin itself has increased in value by approximately 150% in 2020 and is now trading around $18,500,”
“It appears that, unlike in 2017, which was arguably a combination of a cross-border transfer squeeze and a speculative bubble, the current buying is driven by corporates, major institutional holders, dedicated funds and retail platforms such as Square, Revolut and most recently, Paypal.”
Take the millennials and institutional investors and put them all into bitcoin and it’s hard not to see these two key demographics driving its future price.
A $1 million price tag? It’s not out of the realm of possibility.
On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia.
