Below I outline a few reasons why the cryptocurrency market will grow and potentially breach $1 trillion in market value by the end of year. I am not a financial advisor and this is not financial advice, merely my opinion:
There are 3 main factors that will lead to an increase in the cryptocurrency market cap by the end of this year. Will the bitcoin price (and overall cryptocurrency market) increase 10x this year? Probably not. But it is very possible for it to increase 3-5x or more.
The biggest reason I think the market will increase is because of the recent opening of an SEC regulated, institutional grade, digital asset custodial service by Coinbase, the largest digital asset exchange in North America, with $10 billion+ in assets already under management. Institutional grade custodial services for digital assets had never reached Wall Street standards, until now. This was a gigantic barrier to entry for big institutions; there weren’t any services secure enough to store large amounts of cryptocurrency without unnecessary technical risk (that these institutions did not want to take). This has now changed, and this barrier to entry was obliterated by the debut of this long needed service.
A second, and equally important factor is the estimated earnings multiple of the cryptocurrency market. The tech sector is notoriously high in their earning multiples, sometimes eclipsing over 100x in their P/E ratios. According to a study by JP Morgan Analyst Nikolaos Panigirtzoglou, in his paper “Flows & Liquidity” (https://www.zerohedge.com/news/2017-12-02/jpmorgan-has-some-bad-news-bitcoin-bears), there was approximately $6 billion in capital inflows into the cryptocurrency market from 2009 to December 2017, resulting in a $330 billion market cap. According to these calculations, the P/E ratio of cryptocurrency is approximately 55x.
With the current cryptocurrency market cap at $273 billion and the addition of institutional grade custodial services, an introduction of $10-$20 billion dollars could easily result in a $20,000+ value per bitcoin, and a total market cap of over $1 trillion by the end of the year.
A tertiary considering factor when speculating on the value of the cryptocurrency market is the price to “mine” (or validate) a single bitcoin transaction (similarly to mining price speculation for precious metal valuations). As less and less bitcoins are available as rewards for validators (the # of rewards per validation decrease over time), the mining process requires more energy and resources to validate a single transaction. Historically, the value of bitcoin has been approximately 2.5x the mining cost, reaching over 3.5x in the December 2017 peak:
(https://www.cnbc.com/2018/07/05/fundstrats-tom-lee-cuts-his-year-end-bitcoin-forecast-to-20000.html). By the end of the year, the cost to mine a single bitcoin will be, on average, between $8,000-9,000 (compared to around $5000-$6000 at the end of 2017, but prices vary by country and electricity costs), which, according to this valuation, would put the price of a single bitcoin between $20,000-$22,000, compared to $6800 now.
Whether you agree or disagree, leave a comment below and we can continue this discussion and speculation!