Tesla announced that they had invested $1.5bn in bitcoin and the price duly surged. Markets are more efficient than many believe, and in recent months, the bitcoin price has responded positively to known investment flows more than anything else. Back in the day, Bitcoin would spike on news that a coffee shop accepted payment in Bitcoin, or a minor celebrity liked a tweet.
At the time, that made total sense because it was evidence of network adoption and that Bitcoin was catching on. Other examples showed price correlating with the number of addresses, wallets and transactions. Those days are behind us, and today it’s all about the money.
In 2021, Bitcoin miners will be rewarded with approximately 363,350 BTC, which they will presumably sell most because that is their business. In the fourth epoch (4th halving period post-May 2020), it is easier to sustain higher Bitcoin prices than in previous times as the selling pressure has fallen considerably. That is why future epochs are bullish.
However, to sustain a $50,000 BTC price, that requires $18.17 bn of investment flows, each year until 2024. After that, this falls to $8.7 bn (coin generation and fee estimate) in the 5th epoch. It keeps on falling thereafter, meaning that high prices are easier to sustain in the future, than today.
To put the current run-rate of $18.7bn of annual flows into context, the gold ETFs attracted $41bn last year, in their best year on record as 23.84 million ounces were scooped up at an average price of $1,722 each. The late 2020 weakness in the gold price came about as investors banked profits and headed for the exit in November. Given the offsetting flows into Bitcoin at the time, the evidence points towards gold investors switching into Bitcoin.
It has been a good call as the gold investors made it in time for the Bitcoin surge. If bitcoin can attract $41bn in 2021, as gold did last year, expect to see an average bitcoin price of $100k. This is why it is totally rational for the price of bitcoin to bounce to news of inward flows.
A million-dollar Bitcoin
I believe there will be a million-dollar bitcoin price; you just need to be patient. $41 bn of inflows will easily see a million-dollar-bitcoin, but not until 2044. Add in 2.5% average consumer price inflation and that lands in 2036. Bolster inflation to 5%, which seems more likely than not, and that brings it forward to 2032.
2032 is still 11 years away, but a move from today’s price is a huge opportunity with an IRR of 32%. With bonds yielding zero and so on, you can understand the attraction. To sustain a million-dollar Bitcoin in the 4th epoch, or even the 5th, would require huge sums of money. Better to be patient, conserve capital and late nature take its course.
This is bitcoin, so anything is possible, but consider that bitcoin will not always be fed by gold outflows. There will be times when they move the other way. On the great journey to 2032, I…
Read more:Bitcoin + Gold = BOLD – CityAM
