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There are plenty of talking heads in the crypto sector to listen to. Many have long-standing bullish views on certain tokens. And it goes without saying that Bitcoin (CRYPTO:BTC) is among the most closely-watched and most commented on cryptocurrencies in the market.
There’s good reason for this. First of all, Bitcoin is the largest digital asset in the world, with a market capitalization of nearly $1.8 trillion at the time of writing.
That’s an astronomical sum, and at this level, some investors are right to think about what a continuation of Bitcoin’s past performance would mean for its future market capitalization. If Bitcoin doubled four times over, this is a stock that would be nearly $30 trillion, or nearly half the value of the entire U.S. stock market.
Now, there are some investors who think Bitcoin can double before the end of this year. One of Bitcoin’s most prominent and respected analysts is BitMine’s Tom Lee, who thinks Bitcoin could be headed to the $250,000 level before the end of this year.
Is This Price Target Even Possible?
Man raising his hands as if not knowing what to do
A more than doubling of Bitcoin’s price to the $250,000 level would imply a valuation of more than $5 trillion. That’s within the realm of possibility, considering Nvidia (NASDAQ:NVDA) is right on the doorstep of that valuation.
Now, I think it’s important to think about what this means. Bitcoin is now in a race to become not only the most valuable digital asset in the world, but potentially larger than any equity investment in the world, if this prediction comes to light (and Nvidia gains less than $500 billion in market capitalization this year). Now, both Nvidia and Bitcoin have shown increasingly high correlation of late, so such a scenario may still leave Nvidia ahead. But it’s a good thought experiment to think through at this stage of the market cycle.
Lee believes that Bitcoin has not peaked, suggesting that the macro regime is pushing more capital into scarce, high-beta “digital gold.” The idea is that as more spot exchange traded funds (ETFs) and other vehicles allowing for institutional investment to flow into this sector are launched, Bitcoin’s price should increase. That’s because its supply is capped, and there’s a significant amount of existing Bitcoin that have been effectively taken off the blockchain and put into cold storage.
If there is this persistent structural bid for Bitcoin at the same time as new Bitcoin coming online slows (via future halving events – though the next one is years away), that’s good for the price of Bitcoin.
The Macro Story Driving Bitcoin Higher
Federal Reserve chairman Jerome Powell
In addition to advisors and institutions encouraging their investors to catch up in terms of their exposure to Bitcoin and other digital assets, Lee sees another key reason why Bitcoin could accelerate higher this year.
His view is that a more accommodative Federal Reserve could lead to a broader upswing in global liquidity. This would be a massive tailwind for Bitcoin and other risk assets, with interest rate cuts driving yields lower and debasing already-depreciating currencies all around the world. As such, investors will be inherently enticed to take on more risk to earn higher real risk-adjusted returns. In doing so, more capital will flow into the biggest and highest-quality tokens, with Bitcoin continuing to take the lion’s share of the capital flowing into this space.
Tom Lee believes that Bitcoin already behaves as digital gold does (though there’s some debate on that). I’m not a proponent of this idea, but he is right that Bitcoin trades at a fraction of the value of gold currently. If Bitcoin were to catch up, and see increased utility and usage for transactions and other applications over time, then the sky’s the limit.
I suppose that’s true, but this is a big price target with essentially 11 months left to go in the year. Bitcoin naysayers have been wrong nearly the whole way along the journey, so perhaps Lee is more likely to be right than most other prognosticators out there.