One of the main doubts about the value of cryptocurrency is linked to its enormous volatility. For example, three years ago, in December 2017, Bitcoin's value had reached $ 20,000 to collapse a few months later and drop to $ 3,000. At this turn of year, however, the context seems to have changed. The world of traditional finance, which until a few years ago insisted on staying away from Bitcoin, apparently decided to invest heavily in cryptocurrency. Among those who have changed their minds is the American bank J.P. Morgan. On September 13, 2017, CEO Jamie Dimon stated categorically that “Bitcoins are a scam. It is not a real thing, it will end in the end ”.
However, in a report published in early December 2020, investment bank strategists appear to have changed their mind as they indicated that gold may suffer in the long run because of a repositioning of managers in favor of Bitcoin. "The adoption of Bitcoin by institutional investors has only just begun, while for gold it is at an advanced stage," appears in the J.P. Morgan document. That the Bitcoin narrative has changed profoundly also clearly appears in the words of Rick Rieder, that is, of BlackRock, the largest resource manager in the world: “Bitcoin is here to stay”. And the increase was also favored by Paypal, which as of this year will allow Bitcoin to be used as a means of payment for its North American users.
In short, as a market outcast, Bitcoin seems to have become the ball of the day. And it is on the lips of all the big names in the financial market. But is it worth investing in Bitcoin?
According to Citibank analysts, the price of the cryptocurrency is expected to reach around $ 300,000 by December 2021. According to Raoul Pal, a former portfolio manager at Goldman Sachs, the price could reach $ 1 million in 5 years. Today, it is almost impossible to find an analyst who follows the industry and who expresses himself negatively about Bitcoin. Or just to indicate, as was the case until recently, that it is a bubble. Bitcoin is not a company. It has no budget and, therefore, it is difficult, if not impossible, to make an accurate assessment of this asset.
If we start from the intrinsic value, which is that linked to the Bitcoin mining costs, which consists mainly of electricity, hardware and software, we can deduct an average indicative cost that varies between US $ 10,000 and US $ 14,000. From this point, models can be developed to try to assume the value that Bitcoin could achieve over time. Among the cryptocurrency analysts, the stock to flow model, used to measure the scarcity effect, one of the most important characteristics of Bitcoin and by which it can be compared to gold, is very popular.
The stock to flow is the ratio between the total quantity extracted from a raw material (stock) in relation to what is added each year (flow). The greater this relationship, the more scarcity there is. Gold has a stock to flow of 65, silver 22, palladium 1.1. Bitcoin, after the last halving of May (halving the daily withdrawable amount from 12.5 to 6.25 Bitcoin) has a stock to flow of 55. Therefore, cryptocurrency is already very close to gold and will most likely exceed it in four years, when there will be the next halving.
At this point, Bitcoin will likely become the most scarce asset on the market. According to the stock to flow model and taking into account that up to that moment just over 18.5 million have been extracted from a maximum total already set at 21 million Bitcoin, it can be assumed that cryptocurrency can reach the value of US $ 55 thousand in 2021, riding the wave of scarcity effect.
As scarce as gold? When the cryptocurrency code was released, in the early hours of January 8, 2009, its creator, the Japanese Satoshi Nakamoto tried to explain the value of his work in this way: “Doing a mental experiment, imagine that there is a common metal as rare as gold, but with the following properties: with a dull gray color, poor conductor of electricity, not particularly strong, useless for practical or ornamental purposes and a special magical property: it can be traded on a communication channel ”.
