Winklevoss published an article on the Winklevoss Capital blog page this week titled ‘The Case for $500k Bitcoin’ which essentially breaks down the macroeconomic climate of the global economy and puts forward a plethora of reasons why Bitcoin will see a surge in value over the next few years.
The opening paragraphs of the article lay out the reasons why assets like gold and oil have traditionally been good stores of value due to their natural scarcity. Similarly Winklevoss concedes that for over three quarters of a century the US Dollar has also been a reliable store of value as a fiat currency.
The Dollar has long been considered the global reserve currency and is still the favoured currency for international settlements and business at large.
However a number of factors are degrading these very aspects that have made the Dollar, gold and oil reliable hedges against inflation.
Dollar dancing with the devil
There have been a number of well-respected economists and investment experts that have been increasingly critical of the United States Federal Reserve continuing to practice quantitative easing over the past 12 years.
The method was introduced during the 2008 Financial Crisis in order to avoid further damage and provide monetary stimulus to a floundering US and wider global economy. This is a major factor in Tyler Winklevoss’ reason for why the Dollar is on a downward spiral, as he explains in the blog post:
“What began as a shot in the arm during the credit crisis of 2008, never stopped, despite the U.S. economy being out of the woods for years. And so what started as an acute prescription, has morphed into chronic dependence and denial (aka addiction). The resulting maladaptive behavior is, not surprisingly, very difficult to correct. See Exhibit A: every time the Fed tried to rein in QE pre-COVID, markets recoiled viscerally and became combative. And if stock market gains are your measure of success, you will choose not to upset the apple cart, even if it’s wildly untethered to reality. You will naturally avoid a painful intervention and rehabilitation and continue to kick the can down the road as long as you can.”
Winklevoss also aims his crosshairs at the US government’s decision to continually reduce corporate taxes while carrying out quantitative easing measures. The COVID-19 pandemic has further exacerbated the problem, leading to the US Federal Reserve to print more money in one month than it had in two centuries – as Cointelegraph’s headline read last month. Winklevoss closes off his section by speculating that inflation will rise.
Bitcoin is superior to Gold, Oil
Winklevoss also puts forward a number of reasons why Bitcoin will become a better store of value than it’s physical cousins gold and oil.
In short Oil is struggling due to an increased supply driven by improved drilling processes like fracking and discovery of massive oil reserves around the world. Secondly there is less demand as the world moves towards renewable and eco-friendly power sources. Furthermore storage can become a major problem when demand is low – which even led to the price of crude oil turning negative in April 2020 as holders had to pay others to take their oil.
Gold is still considered to be a very good store of value and Winklevoss concedes this point openly but also points to two factors that still remain problematic for the precious metal. Firstly the actual supply of Gold is unknown and its portability will always be a sticking point. Gold is heavy and difficult to transport in large quantities.
Winklevoss posits that Bitcoin’s distinguishing quality is its finite, deflationary supply and its portability which essentially provides a solution to the weak points of gold.
“As it turns out, Bitcoin is better at being gold than gold — and not just incrementally, but by an order of magnitude or 10X better. It is a widely held belief in technology circles that when a product is 10X better than its closest substitute, it will escape its competition. We believe Bitcoin has achieved this. Portability. For example, Bitcoin works like your email, which means it’s borderless and never sleeps — any amount can be sent anywhere in the world over the Internet, 24/7/365. This makes it not just very portable, but also very censorship resistant (e.g., blockades, seizures, etc.). It’s not hard to move Bitcoin in the middle of a pandemic, a war, or a change of government. It’s easy to move Bitcoin, full stop.”
Factoring in all of these various arguments, Winklevoss wraps up his post by providing the reasoning for his lofty, half-a-million dollar future valuation of Bitcoin.
“Today, the market capitalization of above ground gold is conservatively $9 trillion. If we are right about using a gold framework to value Bitcoin, and Bitcoin continues on this path, then the bull case scenario for Bitcoin is that it is undervalued by a multiple of 45. Said differently, the price of Bitcoin could appreciate 45x from where it is today, which means we could see a price of $500,000 U.S. dollars per Bitcoin.”