Why bitcoin, now at $40,000, could reach $100,000 — analysts

The recent bitcoin rally has moved it back into the limelight once again. But there is far less heard about how it’s “unstable,” or “really has no value.”

On the contrary, professional analysts are now forecasting a climb to $100,000 per coin. “Going from $18,000 to $100,000 in one year is not a stretch,” says Brian Estes, chief investment officer at hedge fund Off the Chain Capital. “I have seen bitcoin go up 10X, 20X, 30X in a year. So going up 5X is not a big deal.”

Why?

Institutional investors have clearly made the decision to accept bitcoin as a store of value, and as a safe-haven investment like gold. This is clear from the fact that they’ve largely been the ones behind this impressive rally, in which the original cryptocurrency has gained 160 per cent over a few weeks.

At this writing, bitcoin is at €33,369 per coin, up from €15,852 on December 7. In dollars, it’s jumped to $40,787, from 19,202 on December 7.

And it’s not just some major companies this time, although Square and PayPal (which now accepts bitcoin for payments) are also behind it. Major banks like Goldman Sachs and JPMorgan Chase are treating bitcoin in the same way they would any other valuable commodity.

According to Blockstream’s analyst Samson Mow, big funds like One River, Guggenheim, SkyBridge, Ruffer and MassMutual are buying bitcoin in large amounts, irrespective of the fact that the price has about doubled. What these institutional investors want, according to Mow, is to get hold of as much bitcoin as possible before the supply dwindles.

Bitcoin production – via “mining” – has already been reduced by more than half. The last “halving” was in May. But a vast increase in demand for the coin has emerged, partly from payment specialists like PayPal, but also from funds and banks in an effort to assure their own supply.

The result has been a rally in bitcoin that some analysts say has just started. And forecasts, from utterly respectable investors and banks, are for an extended bull run.

Estes predicts bitcoin could hit between $100,000 and $288,000 by end-2021, based on a model that utilizes the stock-to-flow ratio measuring the scarcity of commodities like gold.

That model, he said, has a 94 per cent correlation with the price of bitcoin.

But Citi technical analyst Tom Fitzpatrick goes much further. In a recent note, he said that bitcoin could climb as high as $318,000 per coin by the end of next year, citing its limited supply, ease of movement across borders, and opaque ownership.

Then there is the so-called “Whale Index.” A bitcoin “whale” is one of these lucky people who invested in the coin when it was worth $1 or at a similar low level. They all became millionaires in 2017, when bitcoin jumped to about $20,000 per coin.

The so-called whale index, which counts addresses or wallets holding at least 1,000 bitcoins, is at an all-time high, said Phil Bonello, research director at digital asset manager Grayscale.

Bonello said more than 2,200 addresses were linked to large bitcoin holders, up 37 per cent from 1,600 in 2018. This suggests that these holders of much bitcoin have decided to increase their stocks while they can.

Interestingly, miner revenue has also seen a very significant improvement from the second half of 2020 and it is likely to continue surging. According to data compiled by Blockchain.com, miner revenue – which is determined by the total value of block rewards and transaction fees paid to miners – increased from $9 million in July 2020 to over $43 million last month.

For investors, this kind of increase in miner fees shows that demand is increasing, and that miners are investing in equipment and software to keep up with it. From an investor’s point of view, miners are keeping their operations alive in anticipation of an upcoming price hike.