Even with the recent lull in early 2022, a time when the cryptocurrency market lost around 20% of its value (as of March 5), the entire asset class has been an exceptional investment in recent times. years. While the S&P500 produced a total return close to 100% over the past five years, cryptocurrencies have grown from a total market value of $24.5 billion in March 2017 to $1.8 trillion today.
the top cryptocurrency, Bitcoin ( BTC -0.20% ), has unsurprisingly garnered a lot of attention as digital assets move toward mainstream adoption. And as it becomes a daily talking point in financial news, there is no shortage of price targets.
Can Bitcoin, currently hovering around $40,000 per coin, hit the $100,000 mark? Let’s take a closer look.
Bitcoin becomes a legitimate store of value
Thanks to its ability to support decentralized applications, Ethereum deservedly receives attention because it offers real-world cryptocurrency use cases. On the other hand, Bitcoin has firmly become a store of value in the world of digital assets. Launched in 2009, it has the longest history. And it now carries a market capitalization of $734 billion (as of March 7).
This longevity has resulted in the development of financial infrastructure to make it extremely easy to purchase Bitcoin. There are exchange traded funds to buy the best cryptocurrency in the world. Additionally, companies like To block, PayPal Creditsand Coinbase Global have made it incredibly simple to gain exposure to Bitcoin.
According to a study by crypto.com, there were 300 million cryptocurrency users worldwide at the end of 2021. And by the end of 2022, that number could reach 1 billion. Given that most people’s first exposure to cryptocurrencies is through buying Bitcoin or Ethereum, the potential for massive buying pressure is certainly there when new investors enter the crypto economy.
And it’s not hard to imagine a scenario where more countries would follow in El Salvador’s footsteps to establish Bitcoin as legal tender. Additionally, large organizations including governments, institutional investors, and corporations might choose to convert some of their cash to Bitcoin. Combined, these trends could easily propel Bitcoin past $100,000.
Famous investor Cathie Wood and her company Ark Invest, known for its mind-blowing predictions, believe that Bitcoin could eclipse $1 million per coin by 2030. Her company’s goal depends on a lot of things happening, like more of countries accepting Bitcoin as legal tender, greater institutional and corporate ownership, and a larger share of the global remittance market. This is the most optimistic scenario in my view, so investors should moderate their expectations to get a more accurate picture.
Bitcoin makes sense for long-term investors
I’m bullish on the overall crypto economy, so making the decision to allocate a small portion (1%-2%) of a well-diversified portfolio to Bitcoin seems like a no-brainer to me. Cryptocurrencies have endured many “crypto winters” in recent years, only to come back stronger. And some of the best and brightest minds are leaving lucrative jobs in traditional tech and finance to work at crypto startups. These factors give me confidence that cryptocurrencies will only become a bigger part of our lives in the years to come.
Perhaps the biggest bearish argument is the threat of governments banning cryptocurrencies (like China did last year). But in the United States, Federal Reserve Chairman Jerome Powell and Securities and Exchange Commission (SEC) Chairman Gary Gensler have publicly stated that they do not intend to make cryptocurrencies illegal. This bodes well for proponents of digital assets.
Therefore, it is difficult to see a future where Bitcoin does not appreciate in value. It certainly won’t be a smooth ride, and investors can expect huge volatility along the way. But with the continued proliferation of necessary financial infrastructure, as well as much-needed regulatory clarity, I think Bitcoin hitting $100,000 is a likely scenario.
And at that price, Bitcoin’s total market capitalization would approach $2 trillion. According to the consulting firm McKinsey, global wealth today stands at around $500 trillion. It is not unreasonable to see that Bitcoin represents half of one percent of this figure.
If I had to set a time frame, I would say it could happen within five years, which would produce an annualized return of around 20%. Compared to Bitcoin’s 3,000% five-year return, this is a major downturn. Nevertheless, the potential to outperform the stock market is very high.
This article represents the opinion of the author, who may disagree with the “official” recommendation position of a high-end advice service Motley Fool. We are heterogeneous! Challenging an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and wealthier.