$2,000,000,000,000
...and We're Just Warming up
“Surreal” is surely a good word for the feeling. At some point during the first year I started learning about cryptocurrencies, their market cap was around $400 billion (maybe even lower). And now, we sit here approaching $2 trillion, before mass adoption. I’ve seen different estimates, but apparently only 2% of the global population has direct exposure to cryptocurrencies. (A larger percentage of the population has indirect exposure, because, now, if you own a share of the S&P 500, you have indirect exposure to Bitcoin, since companies like Tesla, which are a part of the S&P 500, hold Bitcoin on their balance sheets.) So, maybe, in a few months, it’ll feel as if we are in a “super-surreal” state, as the total market cap will likely double by then.
We’ve already begun to see predictions for a rise in the price of gold fall short, as more institutions have begun to use Bitcoin as a store of value as opposed to gold, which has traditionally been used as a store of value. As people and institutions learn that Bitcoin is a superior store of value to Gold for a number of reasons, and if inflation becomes a real concern, more money will likely flow into Bitcoin. This, eventually, will cause peak FOMO, where everyone and their mother apes in. This FOMO hysteria (or "euphoria”, as some term it) will likely be upon us come late summer/early fall of this year.
So, as of today, the total market cap of Bitcoin is $1.1 trillion, while the total market cap of gold is about $11 trillion. And while it’s interesting to think about what can happen to Bitcoin as it continues to eat into gold’s market cap, there is an even bigger question to ask: What will happen to the price of Bitcoin when it begins to eat into the market cap of bonds? As of August of 2020, the total market cap for bonds was approximately $128 trillion. $87.5 trillion of that total consisted of bonds issued by sovereign governments. As we are staring down the barrel of negative interest rates on government bonds (and potential defaults on corporate bonds), where might that money flow? Even if 10% of just the government bonds flows into Bitcoin, Bitcoin’s market would jump from $1.1 trillion to almost $10 trillion. For you non-mathematicians out there, that would mean Bitcoin’s price would jump from $60,000 to approximately $600,000.
This likely won’t happen over night, but it is hard to ignore these numbers. And if you think this prediction seems far-fetched, consider the following:
Keep in mind that one Bitcoin cost approximately $4,400 as of March 2020. That being said, I don’t think Bitcoin will hit $1 million during this cycle.
Please also keep in mind that I have said nothing of the approximately $35 trillion currently invested in the global equity market, some of which may transfer into Bitcoin, especially in such an overvalued stock market. I also haven’t mentioned that larger and larger numbers of millenials prefer to buy crypto assets as opposed to stocks.
To further contextualize Bitcoin’s current market cap, consider the following numbers:
And perhaps the most incredible flippening that has occurred in recent weeks is the total market cap of Bitcoin growing larger than the total market cap of Facebook.
The Winklevoss twins, owners of Gemini - one of the largest cryptocurrencies exchanges in the world - and entrepreneurs that initially conceptualized the prototype for Facebook (before Mark Zuckerberg stole it from them), had to feel pretty fantastic about this.
So, if you still think Bitcoin is a just a bubble, I would implore you to recall that one of the biggest financial bubbles in history, “Tulipmania” in the Netherlands, lasted for approximately seven months. Bitcoin is currently 12 years old and has returned over 200% year-on-year. As the total market cap for all cryptocurrencies approaches $2 trillion, the narrative around cryptocurrencies continues to shift to “too big to fail”. (However, as the price of Bitcoin continues to rise, I believe the U.S. government will attempt to regulate or ban it, but will do so unsuccessfully. More on that in a future edition of the newsletter, though.)
If you have any other interesting numbers to add, please do so in the comments.
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As always, thank you for reading!
Best,
Frank
Currently Watching: Seinfeld, starting from S01/E01 (Just kind of leaving it on in the background to celebrate my moving back to NYC)
Currently Listening To: Hot Water Music “Never Going Back”
“We take our licks and harden up inside / at least for a little while, we don’t feel like dying / slow down my mind, for it’ll all subside / the storm is bound to pass in time … if you rest, you rust / trade sorrow in for trust / if you rest, you rust / find your ground and follow the light out / I’m never going back” -Hot Water Music
