How Big Can Bitcoin Get?

There was more speculation leading up to the launch of the Bitcoin ETF than anything that I’ve ever seen. People were debating how much money these ETFs would take in and what impact the inflows would have on the underlying price.

The nine new spot Bitcoin ETFs that came to market have collectively taken in just under $4 billion. (H/t Eric Balchunas on all this data)

IBIT (iShares) and FBTC (Fidelity) took 4 and 5 days respectively to get to $1 billion in assets. The only other ETFs to get there faster were BITO, the BTC futures ETF, which took 2 days, and GLD, which took 3 days.

The volume that these things are doing is arguably more impressive than the assets. Balchunas notes that:

For context, as a group the Nine’s $1.2b in daily volume puts them in Top 1% of all ETFs (w/ $GBTC as well). But even if you single them out, $FBTC & $IBIT each in Top 2%. Keep in mind the avg age of ETFs in Top 2% is prob like 14yrs old. So pretty wild to get there in a week.”

So the launch of these ETFs was a resounding success. Hard stop. The price of the underlying is more of a mixed bag.

The ETFs are down ~10% since they started trading.  But Bitcoin itself is up almost 40% over the last three months as anticipation of the launch grew stronger. It shouldn’t be terribly surprising that it didn’t go up in a straight line after the announcement of something that had been well-telegraphed. The market, every market, is pretty good about pricing stuff in. This is not to say I called this, I didn’t, but I’m not surprised either. Pretty normal stuff.

I view crypto today as more of an asset class and less of a game-changing technological innovation. I’m open-minded to the fact that this statement may look dumb in the future. Happy to change my mind if I’m proven wrong. So as an asset class, how big can this thing get?

Before we try and answer that question, which is anybody’s guess, let’s look at Bitcoin’s journey to $800 billion.

Since Bitcoin’s market cap first crossed $1 million, it has compounded at an eye-watering 178% annual return. Sober people should expect this to come down dramatically. For should this continue for another three years, it will have a market cap of $40 trillion, the same as the S&P 500 today. If we assume the S&P grows at 8% a year, then it would take Bitcoin 10 years to pass it with the same assumed growth rate.

The easiest analog for Bitcoin is digital gold. Hardly an original take, but reasonable nonetheless. Gold has a current market cap of ~13.5 trillion. My guess is it doesn’t get there unless the broader crypto environment makes serious progress on the techno use case.

Bitcoin is the most polarizing instrument I’ve ever seen. People either love it or hate it. There’s rarely a middle ground. There will always be people who scream that it doesn’t have a use case, despite how high its price goes, and there will always be people who think that everything should be priced in Bitcoin, including your home.

I don’t have a strong take on how big Bitcoin can be, but I do think it goes higher from here (full disclosure, I’ve owned it since June 2020). Not in a straight line, obviously, but if you view it as a commodity, which I do, then I simply think demand will exceed supply for the foreseeable future. No need to make it any more complicated than that.

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