Why, to a strategist, bitcoin is worth $ 120,000

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The debate over the value of cryptocurrencies, and bitcoin in particular, continues in financial markets as major institutional investors debate their role in portfolios. One strategist with an optimistic view of the value of bitcoin is Dhaval Joshi, chief strategist for the Counterpoint product at BCA Research. He shared questions from one of his skeptical clients and answered them.

Joshi’s main argument is that bitcoin BTCUSD, + 0.83% will rise as it becomes a larger part of what he calls the $ 15 trillion anti-fiat market, which is currently dominated by GC00 gold, + 0.24%. “As long as we have a fiat money system, there will be demand for an ‘anti-fiat’ asset that is a hedge against the degradation of the fiat money system,” he says. Central bank moves to introduce their own digital currencies do not alleviate fiat money concerns, he added. Bitcoin currently represents 10% of that anti-fiat market. “As this share doubles or triples, arithmetically it requires doubling or tripling the prices of cryptocurrencies,” he says.

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While gold has intrinsic value that Bitcoin does not have (it can be melted down and used in jewelry, for example), most of its value comes from its status as a dominant anti-fiat asset. The price of gold to silver SI00, + 0.41% is approximately 70, while the inverse ratio of mined gold to silver was 7.5 in 2019. Silver and platinum PL00, + 0.19% are traded more closely in line with your mining relationship. Joshi acknowledges that bitcoin is more volatile than gold and says that, to account for the risk of further drawdowns, investors should have $ 1 of crypto for every $ 3 of gold. It also says that cryptocurrencies will be shared with each other, so it is important to have a diversified basket, with exposure to others such as ethereum ETHUSD, + 0.45%. That $ 1 crypto to $ 3 gold ratio implies that cryptos should make up 25% of the market. This would take bitcoin in particular to $ 120,000. On Thursday, bitcoin was changing hands at $ 56,720. The rise of cryptocurrencies will also have implications for inflation. “With cryptocurrencies as a competing trust system, the only way governments and central banks can maintain our trust in fiat money is not to degrade its value. In other words, cryptocurrencies are the new watchdogs to prevent rampant inflation, ”he says. He also recommends underweight gold miners as the anti-fiat premium for gold collapses. Also Read: ‘We Have Hit A Tipping Point’ In Bitcoin Adoption, Fidelity’s Tom Jessop Says Sign Up For MarketWatch’s Investing in Crypto Seminar