Bitcoin's Valuation Quest: Can It Reach the $70,000 Landmark Amid Current Market Conditions?
Summary:
Bitcoin, having rallied 91% to a $52,000 peak, commands a $1 trillion valuation, placing it within the top ten globally traded assets. It needs a 34.5% increase to reach a $70,000 target, equivalent to a $350 billion boost in market cap. The piece evaluates whether the prevailing market conditions can sustain a $1.35 trillion valuation for Bitcoin. The article also discusses how spot Bitcoin ETFs and institutional inflows have helped Bitcoin mature as an asset class, despite its price remaining below its all-time high. It concludes that a surge past $70,000 is feasible, but unlikely to occur before the halving in April.
Bitcoin continues to be an enticing investment option, having seen a spectacular 91% rise to $52,000 within the short span of only four months, concluding on Feb. 15. The astonishing achievement of a $1 trillion valuation has catapulted Bitcoin into the elite club of the top 10 globally traded assets. Notably, this even surpasses Warren Buffet's renowned Berkshire Hathaway, which commands an $875 billion market cap.
To hurdle to the enviable $70,000 mark from the present figure of $52,000, Bitcoin requires a further increase of 34.5%. This signifies an addition of $350 billion to Bitcoin's market cap, thus outpacing silver and the UK's pound, even when factoring in bank deposits and currency notes. The central issue remains, however, whether the ongoing climate can underpin a $1.35 trillion valuation for Bitcoin.
It's crucial to highlight that Bitcoin has previously navigated these challenging waters, achieving an all-time high of $69,000 in November 2021. The prospects of achieving this milestone again seem plausible, with encouraging factors such as the green light for spot Bitcoin ETFs in the U.S. and the resolution of several risk factors, most notably, Binance's legal tussle with regulators and the bankruptcy proceedings of the FTX exchange.
The record-breaking performance of Bitcoin in the past has been significantly driven by the combination of low interest rates and soaring inflation rates. In November 2021, traditional finance fixed-income yields were a dismal below 0.50% which pushed investors toward high-risk assets for improved yields. Concurrently, U.S. inflation, as per the Consumer Price Index (CPI), hit a 6.8% year-on-year increase in November 2021, the highest since June 1982. The prevailing environment heavily tilted toward scarce assets, while stock market investors were apprehensive about potential global supply chain disruptions and the economic repercussion of the COVID-19 situation.
Fast-forward to January 2024, the latest available CPI inflation data indicates an annual rise of 3.1%. Though it breaches the U.S. Federal Reserve's comfort level, it is moderately restrained. Mistaking the current inflation level to be as dreaded as when Bitcoin soared to its zenith can be misleading. Current analyses suggest expected growth of 10.9% in S&P 500 company earnings, a considerable surge from 3.8% in 2023. Therefore, there's no frantic rush among investors toward alternative assets like Bitcoin, as witnessed toward the end of 2021.
The introduction of spot Bitcoin ETFs has ushered Bitcoin into the realm of mature asset classes. Since its launch on Jan. 11, the U.S. has seen a credible inflow of nearly $4 billion into the spot Bitcoin ETF sector, accumulating around $35 billion, or 3.5% of Bitcoin’s market cap. Whereas, gold ETFs cumulatively hold about $210 billion, roughly equivalent to 3% of its market cap, discounting the estimated 50% in jewelry and medals.
Despite such formidable institutional inflow, Bitcoin is still struggling, with its price languishing 25% below the all-time high of $69,000. Even factoring in inflation or aggregate fiat money supply does not offer much respite. Moreover, Bitcoin's widespread adoption has not translated into bullish price predictions of $100,000 or more. However, a silver lining is the reality of a company with a market capitalization of $3 trillion, like Microsoft and Apple, that was merely a pipe dream back in November 2021. Barring the declining value of the dollar, there's a fair chance for Bitcoin to break past the $70,000 mark. However, this seems an uphill task prior to the halving in April.
It's important to note that this article does not endorse or recommend any investments. Every investment or trading decision inherently involves risk, and potential investors should investigate thoroughly before making any investment decisions.
Published At
2/17/2024 9:05:00 PM
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