I'm sure you've heard by now about the outrageous returns the cryptocurrency market has produced. In 2021, the total value of these digital assets tripled, and the entire market is now worth just over $ 2 trillion.
Bitcoin (CRYPTO: BTC), the most valuable cryptocurrency in the world, ended 2021 with a 61% increase over the year. But there could still be huge gains in the future. ARK Investment Management CEO Cathie Wood also thinks Bitcoin, which was priced at around $ 43.000 on January 6, will eclipse the $ 500.000 mark in 2026.
Let's dive into what needs to happen for the flagship cryptocurrency to increase tenfold over the next five years.
Bitcoin becomes "digital gold"
The present value of all the gold in the world is just over $ 9.000 trillion. Based on Bitcoin's market capitalization of around $ 800 billion, if the cryptocurrency truly becomes what many investors and speculators think it is - a "digital gold" - then it's not hard to believe that its value could approach that of the precious metal. Both possess scarcity, as there is only a finite amount of gold in the earth's crust and there will be only 21 million bitcoins mined. Bitcoin cannot be used in electronics or worn as jewelry, but it can easily be owned or transferred. For "digital gold" advocates looking for an effective store of value, Bitcoin may be the answer.
According to Cathie Wood, if institutional investors allocate 5% of their portfolios to Bitcoin, then it could reach $ 500.000 in value. The likelihood of this happening is anyone's guess, and it will certainly depend on its volatility decreasing significantly, but there are signs that indicate increased investor interest.
There are already numerous Bitcoin-traded funds available. And investment bank Goldman Sachs even has a dedicated Bitcoin trading desk. These developments reduce the friction to get institutions on board. The appeal of owning Bitcoin, or any cryptocurrency, is that it is unrelated to other financial assets. Consequently, it can add a level of diversification to portfolios.
Then there is the possibility that companies will shift some of the cash on their balance sheets into Bitcoin, as Block, MicroStrategy and Tesla have already done. If this trend continues, it will certainly provide support for Bitcoin's price appreciation over the next few years.
Bitcoin's usefulness increases
Another argument that Bitcoin may increase tenfold by 2026 is that its usefulness could increase. While we in the United States may take our advanced payment and financial services system for granted, citizens of developing countries have a different perspective.
El Salvador is the perfect example of how useful Bitcoin can be. Remittances make up a quarter of its gross domestic product, but sending money home carries an average fee of nearly 3% per transaction. Bitcoin offers low (or no) fees for sending payments across borders, meaning hundreds of millions of dollars can be released to instantly improve people's livelihoods in El Salvador. The Central American nation has also recently made the cryptocurrency fiat money, a model that other countries may soon follow.