Thanks to the monetary policies of Ben Bernanke and Janet Yellen, in the US there are concurrent bubbles in all of the traditional asset classes (stocks, real estate, and bonds) . The artificially low interest rates due to central planning have resulted in a gross mis-allocation of capital. A reset is inevitable and in my opinion, desirable. When those bubbles burst and the money flees those assets, where will the money go?
Initially the money will flow into the traditional safe havens - mostly $USD and some gold. Some money will also go into bitcoin at this time, as hedge fund managers and other financial “experts” are already extolling the virtues of bitcoin as a safe haven.
As the crash of traditional financial assets intensifies, the central banks will respond by doing the only thing they know how to do - print more money. This will prompt investors to flee $USD as well. Where will all that money go?
Real estate? No, its crashing.
Stocks? No, they’re getting obliterated.
Bonds? Possibly to front-run the Fed, but yields are so low already there isn’t much upside.
Gold? Definitely! Gold is real money - money that government can’t just print an infinite amount of like they can with fiat money.
Bitcoin? Now we’re talking.
Bitcoin is real money and there is a finite supply which allows it to naturally gain value vs fiat currencies as they inflate their money supply. Bitcoin is a store of value like gold, but has far more utility.
Bitcoin has a reputation for being a volatile and risky investment, but investors will have seen their “safe” investments obliterated while Bitcoin is continuously making new highs. At this point, Bitcoin will seem like a relatively safe investment. In fact, as the rotation from traditional assets into Bitcoin intensifies, Bitcoin will likely be touted by the mainstream media and financial press as the safest investment, and the best way to protect against the financial downturn.
As the financial downturn progresses, some countries will experience currency crises and may be forced to adopt Bitcoin as their official currency. If that happens, central banks will also start buying bitcoins as part of their reserve. Sovereign wealth funds may also start buying bitcoins as part of their asset allocation. Once governments start to embrace and legitimize bitcoin, the masses will rush to get in and cause the price to skyrocket.
So how high can Bitcoin go?
This is impossible to predict, but I’ll give my thoughts on how high it could potentially go. Markets tend to overshoot, and I expect Bitcoin and other cryptocurrencies to become wildly overvalued before the cyclical bull market ends. At the peak of the upcoming cryptocurrency bubble its valuation could reach or exceed that of gold. The total value of all gold ever mined is worth about $7 trillion. If we make an assumption that Bitcoin will make up approximately 25% of cryptocurrency market cap, we get an estimated value of over $100,000 per bitcoin.