$500 Billion? Really? Yes, Really!

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Most everyone probably knows what the headline is referring to, but just in case…………it’s the current market cap of Bitcoin. Now before you go “oh its just another one of those crypto stories again,” lets just look at some really simple mathematical possibilities behind Bitcoin’s huge jump in market cap. (Also, I do write about bitcoin frequently but if I wrote about Cessna Aircraft having a new bi-plane, or Elon Musk having a new hyper-sonic jet, which would you read?) So ladies and gentleman of the jury, is this $500B market cap justified?

Now just because something increases in value really rapidly, it shouldn’t automatically be branded a bubble (check Tesla). Remember, the number of BTC that can ever exist is only 21 million and, to date, roughly 18.5 million are “out there.” NOTE: While there can only ever be a maximum of 21 million Bitcoin, because people have lost their private keys or have died without leaving their private key instructions to anybody, the actual amount of available Bitcoin in circulation could actually be millions less. So over the last decade the realization globally of this new asset class (digital currencies and digital assets in general) has now morphed into acceptance. That’s a big change. With that acceptance has come huge institutional interest and new companies providing an infrastructure to allow large institutions to acquire, and custody, bitcoin.

So where is this huge new demand coming from? Obviously hedge funds have been a big factor, but now increased demand is coming from private funds like family offices, venture firms and recently even publicly held companies. Some of the brightest and biggest name investors have also recently come out to endorse an allocation to bitcoin (still waiting for Jamie Dimon). And, we are talking some HUGE investment allocations in the hundreds of millions of dollars with (so far) most of these purchases taking place beginning at just under $20K. Late to market? Maybe, but these are really smart folks.

However, the most exciting and explosive new demand is yet to come. At some point (soon?) there will be a Bitcoin exchange traded fund (ETF) in the U.S. (Canada and a few other countries already allow digital ETF’s) and you can be sure there will be crypto/digital asset mutual funds as well. Additionally, following the lead of MicroStrategy’s innovative thinking of using bitcoin for its corporate cash reserves, you can be sure some S&P 500 firms will also embrace that thinking. Huge amounts of corporate cash reserves yielding little or no interest will probably find a place in bitcoin.

But the really huge “pot of demand” may be retirement funds via insurance companies. Mass Mutual just a few weeks ago announced it acquired $100M of bitcoin which amounts to just 0.04% of its asset holdings. They are not the only insurance company out there either. To put some numbers to it, should Mass Mutual and like minded companies in the U.S, UK, Euro sector plus Japan allocate just 1% of their assets to Bitcoin that would create $600 Billion in new demand. $600B in demand with an asset having a $500B market cap…………something will have to give.

So, classic economics says increasing demand chasing limited supply means (usually) higher prices. Is that (current) $500B market cap realistic? How does the jury vote?

Now, while you are reading about Elon Musk’s hyper-sonic jet I am hitting my app to buy more Bitcoin. Happy New Year.