The crypto– original currency was invented by anonymous Satoshi Nakamoto in 2009and reached a market value of $1 trillion in 2021, though it has since fallen under that brand.
The question of the value of bitcoin, as an asset class, has long been the subject of debate among its proponents, and is central to the purpose of bitcoin, which most proponents tend to consider like a form of digital gold.
Like gold, a precious metal whose volume is limited by its rarity, the supply of bitcoins is capped at 21 million units, even if all bitcoins will not have been mined until around 2140. due to the mathematical halving of bitcoin rewards for miners.
Due to the argument that bitcoin is a form of digital gold, many believe that the total value of bitcoin should approximate that of all the gold in the world, or around $12 trillion today. The market capitalization of Bitcoin being currently $770 billionreaching the full value of global gold would give Bitcoin holders a return of over 1,600%, but one billionaire investor thinks Bitcoin should be worth much more than that.
Forget Gold, Go Bitcoin
At the Bitcoin 2022 conference held in Miami early last week, Peter Thiel, the billionaire co-founder of Paypal and early investor in Facebook, argued in the conference keynote that the global equity market, and not gold, is the best analogue of bitcoin’s market cap potential. See also: Unusual: You can buy the mansion of this rock legend with… cryptocurrencies..
Mr. Thiel said: “The real competitor to bitcoin is not Ethereum (CRYPTO: ETH) – it is a payment system. It’s not even gold. It’s something like the S&P 500. It’s the stock market as a whole”. He continues, “The benchmark for bitcoin is not gold but stocks, and the question is why there can’t be parity between bitcoin and stocks. Why shouldn’t we be talking about something closer to 100 to 1? “. The 100-to-1 ratio was a reference in his slide to global stocks which are worth $115 trillion, while bitcoin is worth just under $1 trillion.
Is Thiel right about bitcoin?
Thiel has been a key player in how money works in the global economy since 1999, when Read also: Is the Polkadot (DOT) crypto dead? Long live the Parody Coin (PARO) and Caprice Finance (CFT)?. he co-founded Paypal. So it’s worth listening to his thoughts on bitcoin, the cryptocurrency that some say is set to be the next iteration of money. But it is important to understand that Thiel’s argument for bitcoin reaching $115 trillion is not based on its intrinsic value. This is an argument that bitcoin should be an equally valuable asset class for institutional investors, and should therefore receive an equal level of investment. Mr. Thiel underlined this later in his speech when he took on business titans including Warren Buffett, Jamie Dimon, CEO of JP Morgan Chase, and Larry Fink, CEO of black rocksaying, “If you have these big institutional investors, they have to allocate some of their money to bitcoin when they run state pension funds in the United States, or they get trillions of dollars in assets. When they choose not to allocate their money to Bitcoin, it is a deeply political choice. We have to put pressure on them. »
According to Thiel, the reason bitcoin isn’t worth $115 trillion yet is because fund managers aren’t investing enough in it. He calls it a political choice, as the famous libertarian sees bitcoin as a crusade against fiat currencies, or government control.
But there is something reversed in this argument. Global equities, i.e. all companies listed in stock Exchange globally, are worth $115 trillion because those stocks represent companies, like Apple or Buffett’s Berkshire Hathaway, that generate trillions of dollars in annual profits. They’re not worth $115 trillion because institutional investors have billions of dollars to put somewhere and they picked the stocks arbitrarily.
Thiel also ignores the fact that bitcoin is not a productive asset like stocks are. Its valuation, like that of gold or even an NFT, is an article of faith. A bitcoin is only worth around $40,000 today because a group of people, many of them speculators, decided so. It has little practical value.
And what does this mean for Bitcoin?
The founder of bitcoin is Read also: Crypto-currency: This security flaw has allowed the creation of infinite ETH tokens..!.anonymousand there is no CEO to present the cryptocurrency. In this vacuum, Mr. Thiel’s speech takes on added importance, as he is one of the biggest advocates of cryptocurrency. But the speech was just as notable for what it lacked as it was for what Thiel talked about.
He never once addressed the usefulness of bitcoin as a medium of exchange. In fact, he ceded that quality to Ethereum, arguing that Bitcoin was the “gold” of crypto, representing a store of value, while Ethereum was the “Visa” of crypto, used to perform financial transactions.
Most of Thiel’s speech was devoted to destroying bitcoin’s detractors and justifying the $115 trillion valuation. Thiel played the game of the masses by inflating the currency and coming up with the price target astronomical of 115 trillion dollars. Like others before it, the speech revealed that bitcoin can best be understood as a cult rather than an asset class. In other words, it’s an article of faith – which can make you rich if you persuade enough people to buy it – rather than an item of real value. His main argument in favor of bitcoin is more political than economic. A well-known libertarian, he sees bitcoin as a way to escape government control and circumvent the deflationary nature of fiat money and taxes.
This political point is a well-known argument in favor of bitcoin, and it is true that bitcoin has been used in countries like Venezuela, plagued by civil unrest and hyperinflation. But that has nothing to do with bitcoin replacing stablecoins like the dollar.
It’s also worth noting that bitcoin tends to trade as a risky asset rather than a store of value, and notably plunged when the war in Ukraine broke out. When investors “flee to safety,” they flee bitcoin.
No one knows where bitcoin’s price goes from now, but the tailwinds that supported its rise in 2020-21, such as the pandemic lockdown and increased money supply, are fading.
Mr. Thiel seems to believe that the next significant rally bitcoin will require buy-in from institutional investors, but two major hurdles stand in the way of that happening soon. Cryptocurrency is too volatile for most fund managers to invest in, and bitcoin has yet to prove why it should be worth $1 trillion, let alone $115 trillion.