Disclaimer: This site is for informational and entertainment purposes, and should not be construed as personal investment advice. Please seek out a certified financial planner if you need advice tailored to your unique situation.
There is a clear path for Bitcoin to achieve a price of $700k per BTC between now and the 2028 Bitcoin supply halving. This would put the total Bitcoin market cap at $14T, or the same size as gold. The reasoning is rooted in studying the supply vs. demand dynamics for Bitcoin. Demand is poised to dramatically accelerate due to the new set of buyers that spot Bitcoin ETFs allow, while at the same time that new supply gets cut in half because of the April halving event.
The gold/bitcoin comparison is an easy one to make. Gold has served humanity as a neutral reserve (store of value) asset for over 5,000 years, but it has done so in spite of its flaws. As such, it has been supplanted as a technology by Bitcoin. I expect Bitcoin to continually chip away at gold’s market cap, as people turn to a digital version of gold.
Bitcoin at or above gold’s market cap, just plain makes sense. With Bitcoin at a $1 trillion market cap right now, it has gold, with a $14 trillion market cap, clearly within its sights.
Bitcoin’s supply dynamics are unique
Bitcoin is different from gold (and most other assets) in one important way, its supply does not increase as demand for BTC increases, since its supply is fixed in code. In economic terms, the supply of BTC is perfectly inelastic.
Bitcoin as a financial asset is completely unique in this regard. Think about it. Nearly all assets will have their supply increased whenever demand for it increases. Take gold for example, when the price of gold (demand for gold) rises, it is a signal to gold miners to create more gold. When the gold price rises, the gold miners have a financial incentive to invest in better machinery, and dig deeper to find gold that would have been previously uneconomical to obtain had the price not increased.
Gold miners are gold’s worst enemy. When gold’s price rises, gold miners will mine more gold to meet the increased demand, suppressing the rise in the price of gold that would have happened if they did not mine more gold. Gold’s supply is elastic.
Below, a supply (S) and demand (D) diagram of a typical asset like gold, which has an elastic supply curve is shown on the left, and one with a perfectly inelastic supply, like Bitcoin, is shown on the right.
The perfectly inelastic supply curve for Bitcoin is vertical, which is unique to Bitcoin, as all other assets (stocks, bonds, real estate, gold) are elastic and have an upward sloping supply curve because their supply will increase as a response to increased demand for them. In the example above, both elastic and inelastic supply/demand charts start with the same equilibrium price, P.
The price of an inelastic supply asset like Bitcoin will react more positively in response to an increase in demand compared to an elastic asset like gold. This is shown in the supply and demand diagrams below. The same rise in demand (demand curve shifts to right) are shown in both diagrams, but this results in a higher price for perfectly inelastic Bitcoin compared to elastic gold.
Bitcoin’s inelastic supply is fundamental to understanding why Bitcoin will continue to outperform gold, and eventually surpass it in terms of market cap.
Gold is an asset with a market cap of about $14 trillion compared to Bitcoin’s $1 trillion, or ~14X Bitcoin’s current market cap. Since Bitcoin’s supply is perfectly inelastic, I could see its price respond more positively than most are expecting due to increased demand from Bitcoin ETF buyers.
For reference, in 2004 when ETFs for gold were approved, gold’s price rallied 4X what it was prior to the ETF approval over a 7 year period; whereas it had been flat for the two decades prior. Gold’s price increased 4X in spite of the flawed supply dynamics described earlier. Bitcoin’s superior supply dynamics give me confidence that Bitcoin will respond even more favorably to ETF approval than gold did.
Huge demand from ETF buyers
The discussion surrounding spot Bitcoin ETFs has dominated conversations within the Bitcoin community, significantly overshadowing the upcoming supply halving anticipated on April 19th, and rightly so in my opinion. The ETFs are a big deal.
Since their approval on January 10th, the spot Bitcoin ETFs have been scooping up coins at an average rate of about 9,000 BTC per day against the new Bitcoin supply that is currently fixed at just 900 per day. In other words, ETFs are purchasing at a rate 10X greater than the daily new BTC supply. On top of that, with the coming supply halving, the daily new BTC supply will be cut in half from 900 to just 450 BTC per day.
The ETFs make Bitcoin a mainstream asset. Large entities can now take a BTC position by purchasing the recently approved Bitcoin spot ETFs, like the ones offered by BlackRock and Fidelity. These ETFs dramatically increase the demand for BTC because they unlock a whole new set of (very wealthy) Bitcoin buyers. These new buyers include institutional investors like pension funds, insurance funds, and retirement savers as well as retirement age baby boomers who may manage a typical brokerage account. These investors represent tens of trillions in capital; capital that is seeking a return, or otherwise trying to outperform the competition.
Prior to the ETF launch, many institutions were prohibited from participating in the upside of Bitcoin. Legal mandates prevented many of them from directly investing in Bitcoin or holding it on behalf of their clients. The spot Bitcoin ETFs make it possible for them to make a BTC allocation now.
How much demand will ETF buyers bring to Bitcoin? To illustrate, I added together the Assets Under Management (AUM) of pension funds, insurance funds, and retirement savers in the US, which results in a total of $68.2T of assets. Pension funds, insurance funds, and retirement savers manage huge pools of capital which often include an allocation to ETFs. These entities are all likely customers of the new spot Bitcoin ETFs.
How much of this capital would these funds allocate to the Bitcoin ETFs? They will surely only dip their toes in to begin with, but in the longer term, these firms may allocate 1%, or $682 billion towards Bitcoin. What would $682 billion do to the price of Bitcoin?
Bank of America suggests a 118X multiplier for every $1 that is used to purchase Bitcoin. Meaning, for every $1 of buy demand for Bitcoin, BTC’s total market cap would increase by $118; or in our case, ($682 billion)*(118) = $80.5 trillion which would result in a Bitcoin price of about $4.1 million per BTC.
I do not see BTC hitting $4.1 million within the next two years, but these rough calculations are done to illustrate the impact that these ETFs could have on the price of BTC. They also further strengthen my conviction that Bitcoin reaching $700k and surpassing gold’s $14 trillion market cap is really not that high of a hurdle.
Baby boomer wealth transfer
Baby boomers (60-78 year-olds) hold 53% of all the wealth in the United States. However, thus far they haven’t been strong participants in Bitcoin markets. Baby boomers only account for about 1% of cryptocurrency buyers, while 94% of cryptocurrency buyers are in the age range of 18-40.
It’s not surprising that baby boomers don’t buy Bitcoin because the process of buying and storing Bitcoin is new and unfamiliar to them. I can understand why a typical 70 year old baby boomer, who has probably been managing his stock investments through Charles Schwab for the past 40 years, would be hesitant to buy Bitcoin. In order for them to purchase BTC, they would have to download some bitcoin app they have never heard of, pass ID verification, purchase the Bitcoin, go out and purchase a hardware wallet, send their Bitcoin to the hardware wallet, and try to remember the pin number to unlock their funds or otherwise they might lose their retirement savings completely. That’s not to mention the difficulties that holding Bitcoin adds to inheritance planning. Owning real BTC is too much of a hassle for a typical baby boomer. However, many baby boomers want exposure to the asset, Bitcoin, because they want to preserve their wealth, something Bitcoin is good at.
Now, via the Bitcoin ETFs, they can easily get Bitcoin price exposure in their Schwab account. The Bitcoin ETF will sit right next to and trade in the same way as all the other stocks they are accustomed to in their portfolio.
Eventually, baby boomers will pass on their wealth to their children, the bitcoin-minded millennial cohort, who don’t necessarily “trust the system”. This baby boomer wealth transfer effect is a big deal, and further strengthens my belief that these new ETFs are a catalyst that will drive BTC’s market cap higher than that of gold.
The halving effect
Roughly every 4 years (210,000 blocks), the supply of new BTC issued each day gets cut in half (the “halving”). Currently, 900 new BTC are issued per day, which goes to BTC miners. BTC miners are constantly selling that BTC to cover the costs of running their mining operation. The miners create constant sell pressure on BTC to the tune of 900 coins per day. That sell pressure is set to be cut in half to only 450 coins per day on April 19th. That reduced sell pressure creates a reduction in available supply, as less coins will be sold into the marketplace by Bitcoin miners.
The effect of the halving is shown in the supply/demand diagrams below.
Similar to the demand increase from ETFs, a reduction in available supply for perfectly inelastic Bitcoin, results in a higher price. In comparison, Gold does not benefit from a supply halving event.
Gold has been the reigning king of scarce assets for the past 5000 years because it is difficult and expensive to mine, and as a result, its supply only increases at about 1-2% a year. On the other hand, Bitcoin will become more scarce than gold after the April halving. As a result of the halving, Bitcoin’s annual supply increase will drop from 1.5% to just 0.8% per year, a rate slower than gold.
BTC’s price is far away from finding a local top
Bitcoin’s growth so far has been a grassroots effort, with most of its current outstanding supply in the hands of its early adopters. With its fixed supply, Bitcoin can’t just be created out of thin air like many of the assets we are used to. For every bitcoin buyer there needs to be a willing Bitcoin seller. Bitcoin buyers must drive the BTC price up high enough for current holders to be willing to sell to them.
The key question for this halving cycle is: how high will ETF buyers have to push up the price of BTC for early adopters to be willing to sell their coins to them? I think the price will be surprisingly high for many.
Since my following on X (Twitter) mostly consists of Bitcoin enthusiasts, I recently conducted this poll asking a simple question:
My reading of these (imperfect) poll results is that Bitcoin will have to trade up to at least $250K in short order before we see any strong selling from Bitcoin’s early adopters to the new ETF buyers. I personally view it as likely that Bitcoin will trade up to the $500k-$1 million range within the next few years directly as a result of ETF buyers, the supply halving, and Bitcoin’s inelastic supply characteristics. At a $500k – $1 million BTC price range, Bitcoin’s market cap range would be around gold’s at $14 trillion.
Final thoughts
Historically, the Bitcoin supply halving has marked the end of a BTC bear market, and a subsequent rally in its price thereafter. The BTC price went from $12 to $651 (54X) between the 1st and the 2nd halving events, and $651 to $8,602 (13X) between the 2nd and the 3rd halving events.
At the time of this writing, 58 days before the 4th Bitcoin halving, BTC’s price is $52,000, or 6X the price that it was on the day of the 3rd halving.
For Bitcoin to surpass gold’s $14 trillion market cap and reach $700k per coin by the 2028 halving, the price would need to be 14X from where it is today. With history as a guide, I see this as easily achievable given the demand tailwinds from ETFs and the supply crunch from the halving.
Summary
The increased demand from ETF buyers combined with reduction in supply from the halving event could be the catalysts that drive Bitcoin’s market cap to more than that of the world’s favorite shiny rock, gold. That would put BTC at a $14 trillion market cap, or about a $700k BTC price. In addition, demographic shifts from baby boomers, who hold a majority of the wealth in the US, will be a multi-decade tailwind to BTC’s price as they transfer their wealth to their millennial Bitcoin-minded children.
____________________________________________________
Please enter your email below to receive my free newsletter. Mailing frequency is roughly every 6 weeks.