Bubble or a drop in the ocean? Putting Bitcoin’s $1 trillion milestone into perspective

Bubble or a drop in the ocean? Putting Bitcoin’s $1 trillion milestone into perspective

Bitcoin is relatively small compared to stocks and real estate, and those holders might reinvest dividends in other assets.

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On Feb. 19, Bitcoin’s (BTC) market capitalization surpassed $1 trillion for the first time. While this was an exciting moment for investors, it also concerned investors that the asset is in a bubble.

Although a handful of listed companies ever achieved this feat, unlike gold, silver, and Bitcoin, stocks potentially generate earnings, which in turn can be used for buybacks, dividends, or developing additional sources of revenue.

On the other hand, as Bitcoin adoption increases, those same companies will likely be forced to move some of their cash positions to non-inflatable assets, ensuring demand for gold, silver and Bitcoin.

In fact, data shows that diversification between Bitcoin and traditional assets provides better risk-adjusted performance for investors, which is getting increasingly difficult for companies to ignore.

Bitcoin continuing to push above the trillion-dollar mark is also easy to overlook until one compares it to the market cap of other significant global assets. To date, less than ten tradable assets have achieved this feat.

World’s 20 most profitable companies. Source: fortune.com

As depicted above, the world’s 44 most profitable companies combined generate more than $1 trillion in earnings per year. One must keep in mind that stockholders might as well reinvest their dividends into equities, but some of it might end up in Bitcoin.

$1 trillion is small compared to real estate markets

Corporate earnings are not the only flows that may trickle into scarce digital assets. Some analysts estimate that part of the real estate investment, especially those yielding less than inflation, will eventually migrate to riskier assets, including Bitcoin.

On the other hand, current holders of lucrative real estate assets might be willing to diversify. Considering the relatively scarce assets available, stocks, commodities, and Bitcoin are likely the beneficiaries of some of this inflow.

Global real estate markets. Source: visualcapitalist.com

According to the above chart, the global agricultural real estate is valued at $27 trillion. The U.S. Department of Agriculture estimates a return on farm equity at 4.2% for 2020. Albeit very raw data, considering there are multiple uses for agricultural real estate, it is quite feasible that the sector generates over $1 trillion per year.

As recently reported by Cointelegraph, there are 51.9 million individuals worldwide with $1 million or higher net worth, excluding debt. Despite representing only 1% of the adult population, they collectively hold $173.3 trillion. Even if those are unwilling to sell assets in exchange for BTC, an insignificant 0.6% annual return is enough to create $1 trillion.

If there’s a bubble, Bitcoin is not alone

These numbers confirm how a $1 trillion market capitalization for Bitcoin should not be immediately considered a bubble.

Maybe those Bitcoin maximalists are correct, and global assets are heavily inflated due to a lack of scarce and secure options to store wealth. In this case, which doesn’t seem obvious, a global-scale asset deflation would certainly limit BTC upside potential. Unless they somehow think a cryptocurrency can extrapolate global wealth, which seems odd.

Back to a more realistic worldview, the above comparison with equities, agricultural real estate, and global wealth also confirms how insignificant Ether’s (ETH) current $244 billion capitalization is, let alone the remaining $610 billion in altcoins.

Assuming none of the corporate profits or real estate yield will be allocated to cryptocurrencies seems unlikely. Meanwhile, a mere $100 billion annual inflow for Bitcoin is five times higher than the $20.3 billion newly-minted coins per year at the current $59,500 price.

For example, $100 billion flowing into Bitcoin would only be 5% of the $1 trillion yearly corporate dividends and 5% from global wealth or agricultural real estate returns. Even though the impact on gold’s $11 trillion market capitalization would be negligent, such allocations would certainly play a vital role in Bitcoin’s path to becoming a multi-trillion dollar asset.

The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph. Every investment and trading move involves risk. You should conduct your own research when making a decision.

Zur Quelle

Bitcoin is relatively small compared to stocks and real estate, and those holders might reinvest dividends in other assets.

Bitcoin buyers mean business as Coinbase reserves drop $8B in 3 months

Bitcoin buyers mean business as Coinbase reserves drop $8B in 3 months

Demand for Bitcoin remains solid and is fuelling a „supply shock“ that shows no sign of abating, even at $50,000 and higher.

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Bitcoin (BTC) may have shed $10,000 in a week but the cryptocurrency’s „supply crisis“ is more real than ever.

According to the latest data from on-chain monitoring resource Glassnode, exchange BTC reserves are at an all-time low.

Everyone wants BTC

In a telling depiction of investor strategy, exchange reserves have plummeted in recent months — and have continued dropping despite mixed price action.

Hodlers, it seems, want to hodl rather than trade or sell, even at all-time highs above $60,000.

At Coinbase, the largest U.S. exchange by volume, BTC stocks have crashed by nearly $8 billion at current prices, or 150,000 BTC, since January.

A favorite venue for largescale institutional buyers, Coinbase underscores persisting appetite for Bitcoin, Cointelegraph previously reporting on large tranches of BTC leaving its books for cold storage.

Coinbase BTC balance chart. Source: Bybt

„IMO what’s happening is US institutions and HNWI are scooping up the available coins from weak hands and locking it up as strong HODLers in response to monetary inflation,“ statistician Willy Woo commented last week.

„Coinbase BTC supply dropping off a cliff suggests US institutional buying there.“

Woo added that these „strong“ hands had been buying up the supply put on the market during every price correction over the past year, with „insanely bullish“ results.

Major exchange BTC balance chart. Source: Glassnode

GBTC faces unlocking at 14% discount

For asset manager Grayscale, however, conditions remained mixed as its signature Grayscale Bitcoin Trust ($GBTC) traded at a 14% discount to spot price this week.

Near-record highs, the discount in the „GBTC premium“ is likely down to liquidity unlocking for those who bought shares six months ago. 

At that time, a GBTC share cost around $11.17, equating to a positive premium of around 12% over spot price. Now, even with the negative premium, a share is $44.50.

GBTC share price vs. holdings vs. premium chart. Source: Bybt

Grayscale faces stiff competition from new institutional investment vehicles, with NYDIG this week slashing fees as Morgan Stanley prepares to offer one of its funds to its own investors.