1 Best Cryptocurrency to Buy Before It Jumps Another 0 Billion in Value, According to Fidelity Investments
1 Best Cryptocurrency to Buy Before It Jumps Another 0 Billion in Value, According to Fidelity Investments

with Bitcoin (BTC 3.43%) surge in price, analysts and traders are now increasing their predictions on how much higher this cryptocurrency can go. While some of these predictions sound like self-delusion—like claims that Bitcoin’s value will skyrocket to $1 million in a matter of weeks—there are actually some predictions that are much more grounded in reality.

Take, for example, Fidelity Investments’ recent prediction that Bitcoin could soon gain another $500 billion in market cap. Given Bitcoin’s recent price of $50,000 and a market cap of $1 trillion, this would mean that the value of Bitcoin could soon skyrocket to $75,000 and a market cap of $1.5 trillion. That would be enough to push Bitcoin past its all-time high of $69,000.Is Fidelity Right?

Bitcoin as digital gold

Fidelity Investments’ valuation forecast is based primarily on one observation: Bitcoin is increasingly taking over gold’s role as a store of value and inflation hedge for many investors. This makes sense on a certain level, given that Bitcoin has long been referred to as “digital gold.” As a result, analysts often use the size of the gold market as a frame of reference for how valuable Bitcoin may become in the future.

Gold coin with bitcoin symbol.

Image source: Getty Images.

It’s hard to imagine a future where Bitcoin replaces gold entirely, of course, but Fidelity now estimates that Bitcoin could make up 25% of the monetary gold market, which is defined as the gold held by central banks, large financial institutions and governments. Quite simply, instead of buying gold as a hedge against future economic uncertainty, these institutions will soon be buying Bitcoin. Given that the size of the monetary gold market is approximately $6 trillion, this change in strategy could lead to a huge amount of new Bitcoin purchases.

How realistic is the 25% figure?

At first glance, the figure of 25% sounds strange. It’s hard to imagine Federal Reserve Chairman Jerome Powell arguing the merits of bitcoin over gold or huge Wall Street institutions betting all-in on bitcoin as a store of value. But you might be surprised by what the current numbers tell us.

For example, if you accept the argument that Bitcoin is “digital gold,” all you have to do is compare the current valuation of Bitcoin to the market valuation of monetary gold. This will give you a rough idea of ​​Bitcoin’s current market share. And guess what? Bitcoin’s current $1.2 trillion valuation is almost exactly 20% of the $6 trillion monetary gold figure used by Fidelity. So increasing that 20% to 25% doesn’t sound all that implausible.

Also, if you stress-test the fidelity assumptions against those used by other Wall Street institutions, they actually seem a bit conservative. In 2022 for example Goldman Sachs predicts that Bitcoin will eventually account for 50% of the coin gold market, giving Bitcoin a nice round price of $100,000. And in its Big Ideas 2023 report, Ark Invest uses a 20% market share in its scenario of bear, 40% in its base scenario and 50% in its bull scenario.

Is Bitcoin More Than Just Digital Gold?

In fact, the more you play with the numbers, the higher the true Bitcoin valuation will appear. Note that the idea that Bitcoin can gain another $500 billion in market cap is based primarily on the “digital gold” argument. It does not take into account the new inflows of spot bitcoin ETFs or the upcoming bitcoin halving. And it doesn’t take into account Bitcoin’s growing role in the global economy. Once you add all these factors in, Bitcoin’s future valuation seems almost limitless.

But just a word of caution here: it’s easy to fall into the trap of thinking that Bitcoin is worth more than it really is. For example, during the last crypto bull market cycle, Fidelity Investments famously predicted that one bitcoin would be worth $1 billion by 2038. So be careful with the numbers and assumptions you use.

That said, it’s hard not to be bullish on Bitcoin right now. Now that major Wall Street institutions are backing Bitcoin and creating new investment products for it, the future potential of this cryptocurrency looks incredibly high.

Dominic Basulto has positions in Bitcoin. The Motley Fool has positions and recommends Bitcoin and Goldman Sachs Group. The Motley Fool has a disclosure policy.

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