Source: Wave Financial
What do you think of $ 400,000 per bitcoin? Most likely strange, especially if it is expected in the next five years.
But that is exactly the price that analysts at investment firm Wave Financial, based in Los Angeles, believe bitcoin could achieve, using the stock-flow ratio of the investment analysis model, already in 2025.
One of the most interesting parts of our report, released in late February 2021, is the illustration of how the stock / flow ratio was used to accurately predict the bitcoin price movement from $ 4,000 in March 2019 to around $ 50,000 in February 2021 The stock / flow ratio is primarily a gold valuation model. The fact that it works better with bitcoin than most other models gives credit to the belief of many that bitcoin is digital gold.
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We say in the report, entitled “Understanding Bitcoin’s impact on portfolio performance”, that “a $ 55,000 forecast looked relatively strange in March 2019. But today $ 55,000 seems like a reasonable target for 2021. The $ 400,000 target price , again, it seems strange today. ”
As we are now in March 2021, a month after the report was published, some of our target prices are out of date, with bitcoin exceeding the $ 60,000 level.
In mid-February, bitcoin reached a new higher price of $ 50,000 and, for the first time, a market capitalization of more than $ 1 trillion. This is a market recovery that was predictable considering the halving of the mining subsidy that occurred in 2020 and the growing adoption of bitcoin as an institutional reserve asset.
In 2024, the bitcoin subsidy, the new coins launched into circulation, will reduce from 6.25 BTC approximately every ten minutes to 3.125 BTC. In 2020, the mining subsidy fell from 12.5 BTC. The subsidy cut in half occurs every four years, making bitcoin a deflationary asset, which we believe to be one of the main drivers of its price hike.
Meanwhile, major corporate entities and investment firms have increasingly adopted bitcoin as a reserve asset. For example, MicroStrategy, a Virginia-based technology company, has taken the lead on this path. The company, founded by Michael Saylor and Banju Bansal in 1989, HODLs about 90,859 bitcoin, worth more than $ 2.186 billion. The company’s most recent addition to its participation was a purchase at the end of February of 328 additional bitcoins for about $ 15 million at an average price of $ 45,710 per bitcoin.
Electric car maker Tesla, in early February, disclosed in a stock deposit that it had acquired $ 1.5 billion in bitcoins. In fact, in the past five years, a significant amount of bitcoin has come to be owned by large investment institutions and corporate entities.
Throughout February, rumors spread that the software company Oracle was about to announce the purchase of 72,000 bitcoins. On March 11, the company dispelled rumors that the price of bitcoin has dropped by about $ 2,000.
The interest in bitcoin as a reserve asset by conventional companies is not limited to the United States. In early March, Meitu, a Chinese technology company, announced the acquisition of 380 BTC and 15,000 ETH. Meitu founder Cai Wensheng was also found to have 10,000 BTC (worth about $ 504 million) in 2018.
At the same time, Aker ASA announced the establishment of Seetee, a company through which it plans to invest in bitcoin and bitcoin startups. Aker ASA is a Norwegian industrial investment company with interests in oil and gas, renewable energy, marine and green technologies.
In fact, in the past five years, a significant amount of bitcoin has come to be owned by large investment institutions and corporate entities.
“The fundamental reason for this focus on Bitcoin is, in fact, centered on the financial environment of 2020,” says part of our report. “Due to the pandemic, governments around the world are printing money to stabilize and boost the economy” and this is pushing investors towards digital assets as a safe haven.
The report also explains and illustrates the impact that the bitcoin price movement has on investment portfolios that have it as a significant component.
Source: Wave Financial
Bitcoin has technical aspects that set it apart as an asset class in portfolio management and is more likely to turn into a higher class. Historically, bitcoin has performed well in addition to different portfolios because it has a low correlation to most other traditional asset classes. Using different hypothetical scenarios, cryptocurrency is a great tool for portfolio diversification and managing portfolio risk-adjusted returns.
It is also very interesting to observe the technical comparisons between bitcoin and other assets using different scenarios and observing the returns on investment with a focus on metrics such as volatility, Sharpe index and Sortino index.
Wave Financial LLC (Wave) provides institutional digital asset fund products. You can read the report “Understanding Bitcoin’s impact on portfolio performance” by following this Link.
This is a guest post by Constantin Kogan. The views expressed are entirely their own and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.