- Data analysis firm Messari estimates that a low percentage of investment (1%) from institutional investors would put the price of Bitcoin at $50,000 and its market capitalization at $1 trillion.
- A 1% investment in Bitcoin could be multiplied several times by the phenomenon called “fiat amplifier”.
According to the research company Messari, Bitcoin has the chance to achieve a market capitalization of over $1 trillion and a price of $50,000 if investors like Paul Tudor Jones would have a small share in the crypto market. Messari estimates that these investors would only have to provide 1% of their wealth to Bitcoin for the scenario to occur.
The report by Ryan Watkins, a researcher at Messari, proposes a hypothetical scenario in which billions of dollars enter the crypto market. As shown in the table below, if foundations, family offices, sovereign wealth funds, pension funds and mutual funds invested between $20 and $480, depending on the institution, a phenomenon Messari calls a “fiat amplifier” would occur.
This phenomenon consists of an increase in an asset’s price in which it exceeds the initial investment. In other words, the investment could double or multiply 22 times due to higher “liquidity and reflexivity”, as illustrated in the table below where a $20 investment could multiply into a $440 investment. The analysis firm explains this as follows:
Flows into and out of an asset do not necessarily result in 1 to 1 moves in the price of the asset, and can be amplified into much larger price movements. (…). Depending on your assumptions, an aggregate 1% institutional allocation to Bitcoin can easily bring Bitcoin’s marketcap above $1 trillion, or over $50,000 per BTC.
Bitcoin does not need institutional investments
Watkins concludes that the first institutions to enter the crypto market will be hedge funds. Watkins claims that there is still high risk in the Bitcoin market that could keep hedge funds from making an investment. However, Paul Tudor Jones is a notable exception. The head of the $22 billion Tudor BVI hedge fund allocated about 1% or 3% in Bitcoin financial derivatives during May.
Jones compared Bitcoin to gold during the emergence of the gold financial derivatives market. At that time, the volatility of the gold price was similar to that of Bitcoin today. In addition, Jones said that the greatest appeal of Bitcoin is that it will serve as a store of value in light of the inflationary policy the Federal Reserve is pursuing to contain the crisis of the coronavirus pandemic (Covid-19).
Jones believes that high inflation is approaching in the world’s reserve currency, the US dollar, but Bitcoin will be “the fastest horse” to protect against this scenario. With that in mind, Ryan Watkins made the following statement:
Bitcoin may not need institutions to succeed. But reality is, success as a store of value is measured in price. And if Bitcoin is to become a globally adopted non-sovereign store of value, it will need to convince institutional investors to transfer wealth into the asset.