When I first started researching Bitcoin and cryptocurrencies in late 2013, one of the things I was drawn to was this idea of an alternative financial system, or at least a new way to conduct financial transactions that would finally benefit individuals rather than institutions. But when I looked at Bitcoin in those terms and imagined the potential growth and adoption of it as a medium of exchange or a store of value, things got out of whack. If everyone was using it, even just a little, the valuations get crazy. Like McAfee crazy. That’s when I realized this is why people put out numbers like $100,000 Bitcoin and $1 million Bitcoin.
So, let’s break this down a little. If everyone in the world owned some Bitcoin and it was evenly distributed, the average person would have approximately 0.003 BTC. That’s 300,000 satoshis if you like that better. That would be the minimum you would need to guarantee that you would be an average holder of Bitcoin in this scenario.
By comparison, considering all the wealth in the world, the average individual has a net worth of $40,000, based on an oversimplified $280 trillion and 7 billion people.
If everything in the world were priced only in Bitcoin instead of US dollars in the above example, a single Bitcoin would be priced at over $13 million dollars. That’s nuts, of course. I don’t imagine that scenario playing out in any way. We’re just working it out as a thought experiment.
But here’s where it gets interesting. At Crypto.IQ, we talk a lot about mass adoption, institutional money, and smart money. The institutional money will come before mass adoption, and even before that, the smart money will enter cryptocurrency — the millionaires (and billionaires).
Now, we’re still in an innovation and early adoption phase. The smart money is probably already in cryptocurrency to a certain degree, or at least it’s making moves. The institutional money is positioning itself now to enter the market, but the infrastructure (such as regulations) isn’t quite there yet.
What’s going to happen when institutional money starts to flow into cryptocurrencies when mainstream fund managers can invest directly in Bitcoin? When even pension funds can invest in Bitcoin, isn’t every millionaire going to want some in their portfolio? Prudence suggests it is a good idea to diversify a portfolio with a small allocation into a new and potentially profitable asset class.
But there are more millionaires in the world than Bitcoins — approximately 35 million to 70 million millionaires, depending on whom you ask, and only a maximum of 21 million Bitcoins. And we know for a fact they all don’t already have some for the simple reason that there are still Bitcoins available. Do you think those millionaires want to own 0.003 BTC? Nope. They want whole numbers, no matter what the price is.
Here’s a simple fact you need to digest now — if all the millionaires in the world want some Bitcoin there won’t be enough Bitcoins to go around for each of them to have one whole Bitcoin.
Talk about built-in scarcity.