14th May 2024 > > Investment adoption of BTC.

tl;dr

We are well on-track for 3-5% of all investments flowing into BTC.

Market Snap

Market Wrap

A little bit of vol creeping back in, which is nice to see.

Curious Cryptos’ Commentary – The old JPM bash

Warren’s anti-crypto army needs some new recruits, methinks.

My medium-term prediction of 3-5% of all investments deployed into BTC is playing out very nicely.

Curious Cryptos’ Commentary – Bank of Montreal

As those F13 filings pile up, we now know that Bank of Montreal – a big player in the fixed income world – is a recent acquirer of spot BTC ETFs.

My medium-term prediction of 3-5% of all investments deployed into BTC is playing out very nicely.

Curious Cryptos’ Commentary – Metaplanet

Investment firm Metaplanet has announced a “Strategic Treasury Transformation”:

https://contents.xj-storage.jp/xcontents/33500/78d457c2/7534/4ed6/abe3/90f046c452cf/140120240510590390.pdf

I quote:

“Metaplanet has adopted bitcoin as its strategic treasury reserve asset.”

My medium-term prediction of 3-5% of all investments deployed into BTC is playing out very nicely.

Curious Cryptos’ Commentary – Bracebridge Capital

Bracebridge has emerged as one of the largest holders of spot BTC ETFs.

According to its F13 filing, out of a total AUM of $12billion, the firm has direct exposure to BTC via the ETFs of $434mm. That is 3.6% of AUM.

My medium-term prediction of 3-5% of all investments deployed into BTC is playing out very nicely.

Curious Cryptos’ Commentary – What happens if????

The CCC team believes that BTC will be priced at over $1mm, a message we have been shouting about since 5th February, 2021. The commentary below has not been updated with current valuations, and nor have I revisited the assumptions and calculations, but its central theme remains stout, though perhaps the timeline should have been a little less aggressive.

Occasional Series – that ridiculous BTC price prediction of $1.2mm per BTC within 5 years

Completely bonkers. I suspect that was yours and everyone else’s first thoughts on reading my price prediction of $1.2mm. And I am sure you are right. But if you are interested in where I have gone wrong, please read on and I will explain the hackneyed assumptions and overblown growth prospects that led me to this price.

Step 1 – Investment vs Utility

Cryptos can by and large be divided into two categories. The first category sees cryptos as a store of wealth suitable for investment. That’s BTC by the way. The second category sees cryptos as a utility to improve and replace current processes with a more efficient and productive way of achieving the same outcome, or more usually, a new and better set of outcomes. That is all other cryptos.

This doesn’t mean that no other crypto apart from BTC can be an investment (Grayscale have an ETH fund and have filed to launch funds in XLM and LTC amongst others). And this doesn’t mean that BTC has no utility. But I find it a useful mental picture when I think about possible future BTC prices.

Step 2 – BTC is here to stay as the Daddy of them all

BTC clearly has brand recognition and greater user familiarity simply due to its first mover advantage. Despite that, there are many flaws in the design, mostly around the lack of scaling and high fees making it uneconomic to use a means of micro payments especially (incidentally the CCC top pick in the micro payment space is IOTA. If you are interested, I can explain more).

There have always been legitimate fears that BTC could be overtaken and rendered redundant by another crypto. Indeed, when ETH was launched with faster and cheaper processing times, and the vast array of flexibility and functionality afforded by the smart contract concept, ETH was initially seen as the BTC killer.

Ironically, the rise of DeFi – which has only been made possible by the smart contract concept in ETH – has helped to cement BTC in its place. The ability to wrap coins and use them across different blockchains means that despite BTC’s lack of functionality compared to the rest of the crypto world BTC retains as much utility as any other coin that can be wrapped, which is frankly all of them. ETH didn’t kill BTC – it has made it immortal.

The hard fork craze in the latter half of 2017 and 2018 was based on making improvements to the utility of BTC before the advent of DeFi. There were lots of scams too, but many of these projects had laudable aims and could point to specific areas of improvement over BTC. Most have fallen by the wayside. Some are still in existence, the most well-known – which was the first fork – is Bitcoin Cash (BCH).

Despite all of that, none of the hard forks ever came close to challenging the hegemony of BTC. None ever will.

So, over a decade after the launch BTC dominance is still around 65%. It does range, but in an uncertain world, I remain quietly confident BTC is not going away.

Step 3 – Current market cap

Market cap is simply calculated as the number of coins in existence multiplied by the price one gets to 18.62mm *$38,000 is approximately $700 billion. There are another 2.4mm coins to be mined which would add to our baseline market cap but it is estimated that nearly 20% of all mined BTC have been lost forever. That takes 3.7mm BTC out of circulation. For ease of calc, let’s assume the amount of lost BTC is only 2.4mm and therefore nets off the BTC yet to be mined.

Let’s also assume the price is $40,000 (it may well get there today). That leaves us with a baseline market cap of $750bn give or take.

Step 4 – Inflating the market cap

Now I look at each individual use case of BTC for investment purposes. I will start with BTC as an addition to gold reserves held as a risk diversification strategy and inflation mitigation strategy.

The current market cap of gold is about $10 TRILLION.

We can argue all day about where BTC will be relative to gold for risk diversification and inflation mitigation. That really won’t get us anywhere, as not one of us would be right. But I believe that parity of the two markets from this angle alone is not an unreasonable assumption. But to soothe the naysayer’s concerns, I am going to halve that number which I would argue is a very conservative assumption.

Using that assumption implies that – all other things being equal – the market cap of BTC needs to increase nearly 7 times or so in addition to the current market cap. What that means in practice is that the price needs to increase 7 times or so giving us a BTC price of $40,000 * 7 = $280,000 per BTC. That’s a rough figure – if you do the exact calculation get to $307,000 per BTC.

And that is from gold alone.

Step 5 – Inflating the market cap for all other investment uses

If we look at all the other investment use cases for BTC, we need to know the current market cap of those investment cases, make assumptions about how much of that market cap BTC will cannibalise and derive the uptick in price for each individual factor.

Pensions – total market cap at the end of 2019 was approximately $40 trillion. Assuming BTC takes 5% share that gives a BTC price of $147,000 per BTC.

Insurance funds – it’s hard to get a handle on this number (I will keep looking) but I think an assumption that the market cap is not dissimilar to pensions and that BTC could take 5% market share also leads to a BTC price of $147,000 per BTC.

Corporate Treasury – I came across a stat that total corporate treasury holdings are $10 trillion. That seems extraordinarily low to me but again assuming a 5% market share leads to a BTC price of $67,000 per BTC.

Hedge Funds and family firms – approximately $5 trillion but I would put market share at least double that for corporate treasury giving an equivalent price of $67,000 per BTC.

Asset management industry – total market cap is around $100 billion. Assuming 5% market share that gives a BTC price of $307,000 per BTC.

Total savings accounts – in 2018 this was estimated at 22.5 trillion. Assuming 5% market share gives a BTC price of $100,000 per BTC.

Step 6 – Obvious flaws

- Very rough and ready estimates of market share taken by BTC

- An element of double counting

- Simply adding up the total price prediction comes to over $1mm per BTC

- There will be an element of compounding over these different investment uses leading to a price in excess of $1mm per BTC

Step 7 – My price prediction

All of this analysis assumes that BTC has zero utility and is only ever used as an investment vehicle. That is wrong.

So, I upped it to $1.2mm per BTC.

Step 8 – Conclusion

Keep stacking those sats!