The price action behind Cryptocurrency

That is why we believe, despite its recent volatility, long-term movement to Bitcoin as method of inflation hedge will continue.

Many investors view Bitcoin as digital gold, and as the data shows, it makes sense to maintain a small portion of your investments in this digital asset class. After all, in the current market environment, where else might you put your money?

Bonds? No thanks, not with rising interest rates.

Stocks? Hard to make the case for further gains.

Real estate? Depends on how far you think that market can rise considering future interest rate rises. So, at least a small investment in the cryptocurrency asset class can be appropriate for the investor with the right risk tolerance. Moreover, as an investor it is prudent to not pay attention to price, but to focus on your asset allocation and long-term goals. Price is one part of the equation and is of concern in the absence of value (i.e. it is the value that matters). This is how renowned investors like Warren Buffet and Benjamin Graham view their investments.(3)

Bitcoin represents incredible value in the current market environment. Last year, surveys showed that 25% of US households now own Bitcoin, demonstrating absolute adoption of Bitcoin as a megatrend. Estimates are that on the current rate of adoption by 2029 90% of US households will own Bitcoin.

Source: Trading view

What is Bitcoin worth?

This is one of the most debated questions in the market. One way to value an asset is to use what is called the dollar denominated stock-to-flow model. Stock-to-flow models are used to value commodities like gold, silver, and diamonds. Currently, if you throw Bitcoin into this valuation method, it shows that gold is the scarcest asset on earth today. It has a stock-to-flow ratio of 60 to one. So, the stock is the amount of gold that has ever been mined, that is above ground, and the flow is the amount of new gold that gets mined every year.

Bitcoin's stock-to-flow ratio is 45 to one. However, in 2024 the next halving of Bitcoin occurs, reducing the amount of Bitcoin that can be mined. At that point, Bitcoin’s stock-to-flow ratio will move to 90 to one, which will cement Bitcoin as the scarcest asset on Earth.

Today, the total value of gold is valued at around $US10 trillion whilst the total value of Bitcoin is a little bit more than $US1 trillion. Using this model estimates that by the end of 2025, one Bitcoin could be worth approximately $US1 million(4). Note that this model is 95% correlated to the historical price of Bitcoin over the past 12 years.

Remember, price is a minor part of the equation, its value that counts. With this in mind, each investor should assess their risk tolerance, consider their asset allocation and the capital at risk for the upside potential.

Notable happenings in the crypto asset class

Some of the largest institutions in the world, including financial and technology giants like Bain Capital and Intel, are directing huge resources towards the crypto space(5). In fact, institutional interest is booming, which is a critical factor in the building of the robust decentralised financial infrastructure capable of supporting crypto use by the masses.

Just this week, Warren Buffet’s Berkshire Hathaway disclosed it had increased its interest in the world’s largest Neobank, Nubank, to the tune of $1 billion worth of stock(6). While Buffet has been vocal about not wanting to invest directly in crypto, this most recent move demonstrates his willingness to continue to increase his exposure to companies involved in the emerging crypto sector.

Walmart, the multinational retail corporation, and the largest company in the world by revenue, has recently indicated that it is getting deep into crypto with plans for its own cryptocurrency and Non-Fungible Tokens.(7)

Coinbase, the largest US cryptocurrency exchange has just struck a deal with MasterCard to enable crypto payments.

Adding to the list is the latest from BlackRock, who is planning to offer crypto trading its investor base.(8)

If there is one thing that is certain in the cryptocurrency asset class, it is that blockchain technology is here to stay and is attracting investors across global markets from retail to institutions. The technology is rapidly changing the face of business and finance as we know it, and cryptocurrency and digital currency infrastructure underpins much of this change.