How Large Can the Cryptocurrency Market Grow?
Even though a $2 trillion valuation is massive compared to the size of the cryptocurrency market from a couple of years ago, there still appears to be lots of room to grow. Trillions of dollars that are in pension funds, trust funds, and brokerage accounts do not have access to cryptocurrency markets, and as soon as this money is able to be invested, crypto markets may surge to new all-time highs.
In the past two years, the cryptocurrency market has gone from a valuation of around $100 billion to over $2.5 trillion, a massive increase that has never been seen before in history. This 2500% increase in less than 2 years makes many investors wary about future price potential, as it seems like the only place to go from these prices is down. However, this is far from the case.
Right now, the only way to buy cryptocurrencies is through exchanges such as Coinbase, Binance, and Kraken. Even though there are trusts such as Grayscale’s Bitcoin and Ethererum trusts or Bitwise’s 10 Crypto Index Fund, they are being sold at a massive price premium, sometimes as high as 100%. This means that if someone wants to buy $100 of Ethereum through one of these trusts, they pay around $200. Thus, for any investor that values their money, the main way to buy cryptocurrency is through exchanges.
The average retail investor may have no problem creating a Coinbase account and buying $100 of Bitcoin, but for billion-dollar institutions and hedge funds, using Coinbase is simply not an option due to regulations, risks, and difficulties with custody. Instead, they would much rather invest in an ETF, or exchange traded fund, which holds Bitcoin as the primary asset and is traded on traditional stock exchanges such as the NASDAQ. Ideally, this would also be insured against hacks and other black swan events.
There is no current cryptocurrency ETF for American investors, but it is highly probable that in the future there will be ways for investors to buy crypto through the safety of their Charles Schwab or Fidelity account. The trading of cryptocurrencies on traditional exchanges will be a massive opportunity for the market, as there will be trillions of dollars that are now able to flood into the asset class.
For example, there are currently $50 trillion in retirement funds and the top 500 companies make $33 trillion in revenue annually. If these funds and companies had access to cryptocurrency, and wanted to invest a conservative 10% of their holdings and revenues into the asset, that would be $8 trillion, over four times the current valuation of the entire market.
Not only will a growing market cap increase the value of cryptocurrencies, but it will also legitimize them and allow for larger investors to get involved. When Bitcoin was only worth $10 million, it was seen as a fun internet experiment. When it was $1 billion, it was beginning to seem like an interesting investment, but nobody could invest more than a couple million without significantly moving the price. At over $1 trillion, investors and companies around the world are considering it the future of money, and billions can be bought and sold without price fluctuations. If it hits $10 trillion, Bitcoin has a good chance of being the reserve currency for the world, which would make companies and funds feel more comfortable putting hundreds of billions into the asset, furthering its growth and thus further legitimizing its status.
Although it is not guaranteed that large funds will buy crypto when it is available, they are certainly interested, which is why there are many cryptocurrency ETF applications pending approval with the SEC. Even the most conservative investment would be a massive signal that institutions want to put crypto in their holdings, and could easily double, triple, or quadruple the cryptocurrency market capitalization given enough time. Though it is uncertain when cryptocurrencies will begin trading on traditional markets, the sentiment is that it is inevitable, and it will bring about a new era in the history of digital assets.
By Lincoln Murr