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The Case For $2 Million Bitcoin

The Case For $2 Million Bitcoin

Chris Campbell

Posted October 27, 2023

Chris Campbell

Egg meets face.

On August 30, I warned against Bitcoin FOMO.

At the time, the courts told the SEC to give the Grayscale’s Bitcoin ETF application the review it deserves.

My point: Contrary to popular thought, it certainly didn’t guarantee an ETF. Don’t get caught up in the hype and bet the farm. (Sidenote: If you’re a DCAer? Stay the course.)

Though I was right about not seeing an ETF so far this year…

As you know…

Lots has happened since, and I’ve been looking at the math.

Today, let’s take a look at the bullish case for Bitcoin that’s been spreading around the x-bird app.

We’ll start with an analogy.

The Multiplier Effect

You're in Wall Street's fanciest boardroom, talking shop with some of the world’s best movers and shakers.

Your attention gets snagged by the story of "DollarDream Inc."

They've got this chest of 100 million shares…

BUT

They’re only letting 10 million of those shares out into the wild.

 Investors clamor for a piece, and each share gets snapped up for $1.

That's $10 million, right?

Nope!

Slap a $1 price tag on ALL 100 million shares and – voila – you've got a $100 million market cap.

That $1 just turned into $10 in perceived value for every share they're holding back.

This is what's called the "multiplier effect".

It’s when a small amount of buying can have a disproportionate effect on the price, especially in markets where available supply is limited or where there's a lot of speculative activity.

And it’s the reason why every $1 put into Bitcoin in the past week has turned into $193 in market cap.

Let me explain.

Price is Set at the Margins

The first thing to recognize is price is set at the margins.

In markets, the latest sale price determines the value of similar items, even if most aren't being sold.

(There are exceptions to this rule, but they’re rare.)

For example, if a house in your neighborhood sells at a significantly higher price than previous sales, it can raise the estimated value of similar homes in the area, even if those homes are not on the market or haven't been sold recently.

Same thing for Bitcoin.

Last Monday, we saw Bitcoin’s market cap go up $63 billion from an estimated $325 million of demand, pushing the price up $3,000 per BTC.

That’s the multiplier effect in action. For every $1 invested, Bitcoin’s market cap increased by $193.

Keep that in mind.

Right now, we’re seeing something unprecedented in Bitcoin.

The HODLers

Remember, even if only a small fraction of all Bitcoin is actively traded, the price of those trades determines the market value of all Bitcoin in circulation.

And right now, the supply is shrinking.

76% of the total supply hasn’t been sold in the past year. 56% haven't been sold in the past two years.

In fact, this is the first time we’re entering a halving cycle (when the rewards of Bitcoin mining is cut in half) where there is less supply on exchanges than previous cycles.

About 1.85 million Bitcoin is on exchanges.

Now, here’s the thing…

At this point, we can be relatively confident a Bitcoin spot ETF will be approved. (My bet is by February 2024.)

Blackrock projects that their iShares ETF (iBTC) and similar funds will bring in $200 billion to Bitcoin over the next three years.

Distributed over three years, this amounts to a daily investment of $183 million.

At current prices ($33,600), that’s about 5,500 Bitcoin per day, and during a time when daily issuance will drop from 900 coins per day to 450 per day in 2024.

Of course, this 193x multiplier effect probably won’t stay intact as the price moves up…

But what if a demand shock kept it intact?

Well, that would mean Bitcoin's market cap would go up by about $35 billion each day on average, resulting in a daily price rise of approximately $1,700 for Bitcoin.

Meaning? In three years, Bitcoin could hit $2 million, only from ETF demand.

At that point, exchanges would would price BTC in “sats,” or single units of Bitcoin.

And owning one Bitcoin would be like owning a piece of prime real estate in the heart of Manhattan.

Of course, obligatory disclaimer: models like this are simplifications and many factors could influence the actual outcomes.

BUT

Bitcoin -- and crypto in general -- remains one of the biggest asymmetrical bets in the market today.

Owning it is risky. But perhaps not owning any is riskier.

As always, DCA is the way.

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