I bet that going into 2020, you’d never have guessed that a pandemic would take over the world. You couldn’t have imagined that the global economy would come to a halt and that we’d be left in a major financial crisis. You couldn’t have dreamed that central banks would start printing money like it’s going out of style.
But here we are. And you know who is doing pretty well in this environment?
Bitcoin, of course.
Actually, that’s one of the few things that you could have guessed for 2020.
Bitcoin is resilient, predictable and it has an algorithmic monetary policy. That means everybody knew the third Halving was coming this year. And with a lower supply comes higher prices.
Yet, how many times before May did you hear that the Halving was priced in? Remember: Back then, BTC was still below $10,000.
As the year is coming to an end, I think we can finally settle the debate. No, the Halving was not priced in. And you know what? As of today, the Halving still isn’t priced in.
The Bitcoin Halving Is Not Priced In
Do a simple exercise:
Take the BTC price at the time of the third Halving
Apply the growth trajectory of the first Halving
Apply the growth trajectory of the second Halving
Assuming the third Halving cycle looks like the previous two, that gives you a range of possible growth trajectories. No need to do the math yourself, I’ve got you covered. Here is what you get:
We are just at the beginning of a new exponential growth phase, which means that this cycle probably has 15-times returns left in it.
So, again: No, the Halving is not priced in. It is still early to take on the Bitcoin bet.
Making The Bitcoin Bet
The Bitcoin bet has two components:
Bitcoin is a store of value
Bitcoin is an asymmetric bet
The store-of-value component is by design and it isn’t going away. As long as the Bitcoin network is running, BTC will be a safe, predictable and a debasement-proof way of preserving your wealth.
At times when central banks everywhere in the world are relying on a debt monetization strategy to keep the legacy financial system running, you don’t want to pass on a good store of value. This is valid now and will remain valid in ten years.
On the other hand, the asymmetric bet has a timing component to it.
What’s the idea? The Bitcoin market is small. Actually for an asset that is essentially digital gold, it is ridiculously small.
Don’t believe me? Consider the facts that:
The Bitcoin market with 1 BTC valued at $20,000 would be as large as JPMorgan’s total market valuation.
The Bitcoin market with 1 BTC valued at $50,000 would be as large as Google’s total market valuation.
The Bitcoin market with 1 BTC valued at $100,000 would be as large as Apple’s total market valuation.
The Bitcoin market with 1 BTC valued at $300,000 would still be smaller than gold’s total market valuation.
And you were wondering why giant asset managers like BlackRock haven’t taken a position yet. The answer is simple: Until now, the Bitcoin market was simply too small.
So, for its use case, Bitcoin is very early on its adoption curve. For it just to reach the same size as the gold market, Bitcoin will have to grow by 30 times. This is the asymmetric bet.
If you invest in bitcoin now, you get both the benefits of a store of value and a potential 30-times return.
Even if you think the probability that Bitcoin will be as big as gold is low, it is still a bet worth taking. Obviously, the earlier you get in, the bigger the expected reward.
Do The Math
You can do the math. I can do the math. Michael Saylor can do the math. That means the smart money can do the math, too.
Just looking at the Grayscale Bitcoin trust inflow over the past year is enough to convince you that smaller institutional investors, family offices and high-net-worth individuals have already started to increase their exposure. We can also add to that a few big hedge funds, such as those run by Paul Tudor Jones and Stanley Druckenmiller.
And don’t forget publicly-traded companies such as MicroStrategy and Square, which are investing in bitcoin as a treasury asset.
The point is: Bitcoin is climbing on the adoption curve. Deep pockets investors are buying at the same time as the supply is getting more scarce. You don’t need complicated models to see the writing on the wall. You don’t need to be a genius to realize all of this will push the price high enough for bitcoin to start seriously competing with gold in terms of market size.
When that happens, everyone will want a piece of the pie, including large mutual funds and asset managers. And from there, things will snowball into something much bigger than what we can imagine now.
How long will that take? Ten years? Less? More? Who knows. That’s not in your control.
What is in your control is how you will act now.
Whether you use your favorite stock-to-flow model, apply the previous cycles’ growth or do some napkin math, it seems likely that bitcoin will rise above $100,000 in 2021. If you have been stacking sats up to now, then good for you. Continue like that.
If you aren’t invested yet, then get off zero.
Bitcoin is one of those rare asymmetric bets that anyone can make. Don’t let your luck slip away.
