(Kitco News) – The predicted demise of the U.S. dollar is often cited as one of the primary reasons that many investors hold Bitcoin (BTC), with some predicting a six-figure price to come as the dollar falls, but according to one analyst, King Crypto doesn’t need the USD to fail to reach a price of $200,000.
“A common mistake people make when evaluating Bitcoin leads them to dramatically underestimate its potential,” said Matt Hougan, Chief Investment Officer at Bitwise. “A financial advisor asked me a great question over dinner last week: Does the U.S. dollar need to collapse for Bitcoin to hit $200,000? It’s a great question because it exposes the fuzzy logic many people use when talking about Bitcoin.”
He outlined the common argument. “Bitcoin is digital gold, and the U.S. is abusing the dollar; therefore, Bitcoin is valuable.”
“Those words are true—heck, I’ve probably said some variation of them on CNBC,” Hougan said. “But they are lazy. Specifically, they mash together two separate arguments into one.”
He said posing the argument in this manner “is harmful because it causes people to significantly underestimate Bitcoin’s full potential and underestimate its probability of success. You get a much better view of Bitcoin if you break the arguments apart and consider them individually.”
Looking at the argument that Bitcoin will succeed, Hougan said that’s the “first bet” people make when they initially decide to make an allocation. “To me, that means it will one day stand shoulder-to-shoulder with gold as an established and well-understood store of value that is held by all types of investors.”
“Bitcoin has made enormous progress towards this goal over the past 15 years,” he added. “It’s grown from nothing into an asset worth more than $1 trillion, held by 60% of the world’s largest hedge funds, many of the world’s largest asset managers, and even some countries. It has survived bull and bear markets, scandals and breakthroughs, and multiple regulatory regimes. Most people now admit it’s here to stay.”
That said, he noted that it has still not advanced enough to be considered a “mature” asset.
“Today, most institutional investors still own zero Bitcoin,” he underscored. “It’s still banned at many financial institutions. The media still doesn’t trust it. And many people still don’t understand it. You don’t hear that about gold very often.”
With a current market cap of just under $1.4 trillion, the value of Bitcoin only equates to 7% of gold’s $18 trillion market cap. “I don’t know if a ‘mature Bitcoin’ is half gold’s size, equal to gold, or twice as large as it brings in a new demographic. But I’m confident it’s not 7%,” he said. “For those keeping score: If Bitcoin’s market cap were to grow to the size of gold’s, every Bitcoin would be worth ~$900,000.”
“A reductive, zero-sum version of this argument is that Bitcoin will eat into gold’s market,” Hougan said. “But I think a more likely scenario is that Bitcoin will incrementally increase the size of the ‘store-of-value’ market. So, a bet on Bitcoin is a bet that it will continue on its current path from niche to mainstream. This has been the primary driver of its spectacular returns over the past 15 years. I’d argue there is plenty of room to go.”
Regarding the argument that Bitcoin will go up as fiat currencies fail, Hougan said, “The second bet you’re making when you buy Bitcoin is that the U.S. and other governments will continue to print money and take on debt, debasing the value of fiat currencies. As the reasoning goes, this both increases the value of ‘store-of-value’ assets like Bitcoin and gold and drives more investors to allocate to such assets, growing the market further.”
“In the U.S., we now have $36 trillion in federal debt—and we’re adding $1 trillion every 100 days,” he highlighted. “This year, we’ll spend $900 billion servicing that debt, making interest payments one of the largest line items in the federal budget. The Congressional Budget Office estimates that debt will hit $142 trillion by 2054.”
Hougan suggested that debt and money-printing at this scale will “significantly expand the size of the store-of-value market, as investors seek a haven from this insanity. Could the current $20 trillion market become $50 trillion in 10 years? $100 trillion?”
“I’ll say the obvious thing: If the size of the store-of-value market triples over the next 10 years, and Bitcoin simply retains its 7% share of that market, Bitcoin’s price would triple as well,” he explained before noting that “many in the Bitcoin community—including me—think Bitcoin has uses beyond the traditional ‘store-of-value’ argument.”
“For instance, I think Bitcoin will one day be used as an alternative to national currencies to settle international payments,” he said. “Any additional use case arguments like these are a bonus.”
Hougan said the important thing about the arguments surrounding Bitcoin’s success and fiat debasement “is that they are both cumulative and distinct.”
“By distinct, I mean that you only need one of them to work to be successful as an investor,” he explained. “Imagine Bitcoin grows to 25% of the current gold market and nothing else happens. No market expansion, no new use cases, no fears of spiraling debt. Great! In that scenario, Bitcoin would hit $214,000, roughly four times current levels.”
In the instance where Bitcoin doesn’t increase its market share but the store-of-value market triples, he reiterated that “Bitcoin would triple as well.”
“The real magic comes if both things happen (and even better if the bonus opportunities kick in),” he said. “The good news is, I think this is the most likely scenario.”
“So, the answer to my advisor friend is, no, Bitcoin does not need the dollar to collapse to hit $200k. It can get there just by capturing a sliver of gold’s existing market,” he concluded. “But as governments continue to abuse their currencies and Bitcoin continues to mature, it might just get to that level—and well beyond.”
