Bitcoin: The Path From $4,000 to $40,000

Investors and hedge funds managers have forecasted significant price points for bitcoin. These forecasts have varied from $20,000 to $40,000 to $250,000 and even $4 million. While these price points and values range wildly, it would help to understand the logic and the reasoning behind these seemingly wild valuations for the digital currency.

Let’s take a look at the larger context behind the potential shift and how these valuations may be realized.

Transition From The Physical To The Digital
Venture capitalists such as Tim Draper expect bitcoin to rise as more individuals go fully digital. Tim Draper is noted to have stated that the use of cash would decrease over the next few years. Draper believes that cash is a medium that’ll be used mostly by criminals in the future due to the inherent transparency present within the bitcoin blockchain.
It certainly does seem that cash will be less popular in the future.

Software is eating the world and value is being digitized by companies such as WeChat, AliPay, Apple Pay and Venmo.
Governments in emerging and populous countries are expecting to phase out the anonymity of cash. Countries such as South Korea, China, India, and other countries such as Ecuador which has operated a virtual currency from 2015 to 2017. It is important to note that the project launched by Ecuador to monopolize the currency was not well received by the public and the government had to close it down.

While large investors may expect a cashless society, it may not happen within the near future. According to the Financial Times, individuals may want to see further security in their financial institutions from a data and liquidity standpoint. Consumers may still want to see a strong technological infrastructure, and may be spooked by excessive spending via credit cards and digital payment mediums to fully go digital with their cash.

Lack Of Trust in Financial Institutions After The Financial Crisis
The 2008 financial crisis showed the globalization of the world and how many large financial institutions are linked together in some form or fashion. The interlinked nature of the general financial system can be a positive and a negative. In bullish times more value may accrue to risk assets and more liquidity may be present within the system. In bearish times, when investors de-risk and flee traditional markets, the situation may turn dire. Risks within the system were largely believed to handled improperly and may have had a negative impact on the psyche of young and old investors alike.

Travis Kling wrote a seminal post on the matter where he stated “More than a decade ago, the world began the largest monetary and fiscal policy experiment in human history: globally-coordinated quantitative easing while running massive deficits on top of increasingly untenable debt levels.” Kling further stated “that ‘experiment’ is now 10 years old and facing daunting challenges, because risk assets are now entirely reliant on cheap money.”

The potential for negative surprises in the market from stocks to bonds and the potential implementation of policies such as negative interest rate policies may also sway investors to allocate value to bitcoin.

Time & Patience
An important factor to analyze would be that of time. Billionaire investors have stated that they expect Bitcoin to rise to “$20,000 or $40,000 at some point”. Crypto celebrities such as John Mcaffee forecasted bitcoin’s price at $1 million by 2020. Most large investors expect a different outcome and bet on bitcoin to rise over a longer period of time from several years out to others who have longer time horizons that span several decades.

Education
As more people become aware of the need for sound money and a new store of value that would maintain purchasing power and increase in value as a “non-sovereign, hard-capped supply, global, immutable, decentralized, digital store of value” serving as Gold 2.0 according to Travis Kling.

The value of bitcoin is expected to rise as more understand the need for a secure, censorship resistant, pseudonymous, decoupled non-sovereign store of value. There’s still a large market of people consisting of nocoiners, precoiners, and multicoiners who can increase their allocation to the asset but still need to understand why it may be in their best interest to do so. As education spreads, value will likely flow from other assets, demand will go up, and bitcoin will increase in value.

Financialization and Institutionalization
As more financial products arise that would allow individuals to have exposure to the asset such as the Grayscale Bitcoin Trust, ETF’s, and asset management firms such as Morgan Creek Capital Management, the price of bitcoin is expected to rise. Investors have the ability to invest in publicly traded companies which have exposure to bitcoin such as Galaxy Digital (GLXY.V) and Voyager (VYGR.V) which trade on the Toronto Stock Venture Exchange and help to facilitate transactions, grow the industry and potentially help to bring more parties into the cryptocurrency sector.