Investors are being tempted to turn bullish on Bitcoin, especially after its impressive 91% rally to $52,000 in just four months. With a current valuation of $1 trillion, Bitcoin now ranks among the top 10 tradable assets worldwide, even surpassing the market capitalization of Warren Buffet’s renowned Berkshire Hathaway, which stands at $875 billion.
To reach $70,000 from its current level of $52,000, Bitcoin would need to gain an additional 34.5%, resulting in a $350 billion increase in its capitalization. This would position the cryptocurrency ahead of silver and the United Kingdom’s pound, including bank deposits and currency bills. However, the question remains whether the current conditions are supportive of Bitcoin’s $1.35 trillion valuation.
One could argue that Bitcoin has already overcome similar challenges in November 2021 when it reached its all-time high of $69,000. The likelihood of repeating this feat seems more plausible now, given the approval of spot Bitcoin ETFs in the United States and the resolution of certain risks such as Binance’s court battle with regulators and FTX exchange bankruptcy procedures.
Bitcoin’s previous all-time high was driven by low interest rates and surging inflation. In November 2021, traditional finance fixed-income yields were below 0.50%, prompting investors to seek riskier assets for higher returns. Additionally, U.S. inflation, as measured by the Consumer Price Index (CPI), surged to 6.8% year-over-year, the highest since June 1982. These conditions strongly favored scarce assets, while stock market investors were concerned about global supply chain disruptions and the economic impact of COVID-19.
The most recent CPI inflation data for January 2024 shows a 3.1% year-over-year increase, which remains above the U.S. Federal Reserve’s target but is relatively contained. It would be naive to assume that the current level of inflation poses a risk comparable to when Bitcoin reached its all-time high. Data indicates that investors are expecting a 10.9% earnings growth for S&P 500 companies, up from 3.8% in 2023. Therefore, investors have less incentive to seek alternative assets compared to late 2021.
The launch of spot Bitcoin ETFs in January 2022 has transformed Bitcoin into a more mature asset class. These ETFs have attracted an impressive $4 billion in net inflows in the U.S., surpassing $35 billion in assets, equivalent to 3.5% of Bitcoin’s market capitalization. In comparison, the collective holdings of gold ETFs amount to $210 billion, representing 3% of its market capitalization when excluding the portion used in jewelry and medals. This suggests that Bitcoin’s ETF market is more mature now compared to November 2021.
Despite the institutional inflow into Bitcoin, its price still remains 25% below its all-time high of $69,000, or even lower when adjusted for inflation or the aggregate fiat money supply. While Bitcoin’s adoption has increased, the optimistic predictions of a price exceeding $100,000 have yet to materialize. However, it is worth noting that in November 2021, a $3 trillion market capitalization company seemed like a distant dream, yet it became a reality for Microsoft and Apple. Therefore, as long as the value of the dollar continues to decline, there is hope for Bitcoin to surge above $70,000. However, this is unlikely to happen before the halving event in April.
It is important to note that this article does not provide investment advice or recommendations. Every investment and trading decision involves risk, and readers should conduct their own research before making any decisions.