At the time of writing this piece, Bitcoin (BTC) briefly approached the $9,000 price level, marking a 25% increase just 17 days into the new decade. Such massive gains within a short period are not uncharacteristic of the cryptocurrency, and as expected has excited traders and investors that got in at a nice entry point.
However, a vital point that could easily be forgotten with BTC’s latest spike is its potential to go higher despite its extremely volatile nature.
As confirmed by the Bank of American Merrill Lynch (BAML) now known as BofA Securities, Bitcoin was the best investment vehicle of the 2010s with over 8,900,000% gains (The figure was higher when Bitcoin nearly touched a $20,000 price in last 2017).
Given such meteoric rise, the question that most new people usually ask about the cryptocurrency is whether they’re late and whether Bitcoin is still undervalued. Would Bitcoin still be undervalued even if it hit its former all-time high?
Well, here are the reasons why Bitcoin may still be seriously undervalued, even at $20,000 per coin.
6 Reasons Why BTC Would Still Be Seriously Undervalued Even at $20K
1. Publicly-traded ETF Still in the Works
In the last couple of years, the United States Securities and Exchange Commission (SEC) formed a new habit: turning down proposals for a rule change that would allow a national stock exchange to list an exchange-traded fund tracking bitcoin.
Such an investment product would arguably open the way for mass adoption as people can buy into BTC via a regulated stock exchange, without actually holding it in a wallet.
The volume of Bitcoin lying in the wallet of crypto exchanges suggests that not keeping custody of their bitcoin is the preferred investment method for the average retail investor, meaning that the chance to do so on a regulated exchange will undoubtedly appear as a viable option for those who have been spectators until now.
U.S SEC Chairman, Jay Clayton cited market manipulation and custody issues as the core reasons why they’re not open to approving a Bitcoin ETF at the moment. He also raised hopes that such an approval would come in the future, noting that recent attempts were coming close to meeting their requirement.
The SEC approving a Bitcoin ETF would have a domino effect on countries who have looked up to the United States to create rules for the emerging crypto space, potentially bring in more money into bitcoin and the industry in general.
2. Deficiency In Number of Fiat Onramps
Beyond sanctioned and economically-troubled countries, most nations still do not have efficient fiat to crypto exchanges, either because of the low number of potential users or because of regulatory uncertainties, as seen in the case of India.
Those who invest in Bitcoin from these regions (Venezuela, Cuba, India) rely on peer-to-peer platforms such as LocalBitcoins and WazirX and often end up buying BTC at a premium.
Also, it was only recently that most crypto exchanges, including Binance, which started as crypto-to-crypto trading platforms, began to integrate fiat onramps, making the market more liquid for investors.
With such infrastructure rapidly growing and the onboarding process getting more seamless, there is no doubt that more money will easily flow in and out of the industry, a feature that characteristic other thriving financial markets globally.
3. There are Less Than 7000 Bitcoin ATMs Globally
Bitcoin ATMs augment fiat onramps and also serve as an advertising channel for the young asset class.
According to data from CoinATMradar, there are currently 6589 Bitcoin ATMs globally, a number that is only a fraction when compared to the number of fiat ATMs in some of the world’s most densely-populated cities.
Interestingly, the number of Bitcoin ATMs grew by over 500% in the last four years. If such numbers are anything to go by, then there is no questioning how many Bitcoin ATMs would be installed within the next decade and the number of people that would be learning about or investing in Bitcoin for the first time using this channel.
4. Regulatory Clarity Keeps Improving
Aside from the case of India cited earlier, some countries, especially in Africa, outrightly prohibit their citizens from using Bitcoin or any cryptocurrency.
This regulatory uncertainty is the reason why most people do not trust Bitcoin as an investment vehicle, with the few who understand it staying away to avoid incurring the wrath of regulators.
In 2019, however, there was a breakthrough in this regard after the Financial Action Task Force (FATF) introduced rules for crypto-related businesses, otherwise known as Virtual Asset Service Providers (VASPs). Those rules, although stern was a breakthrough in the right direction given the large-scale security breaches suffered by crypto exchanges since they came onto the scene.
Those rules, as WazirX reports, is playing a part as the Indian crypto ecosystem tries to rescind a ban that stopped local banks from providing their service to crypto-related companies.
With such an initial impact, one may not be wrong to conclude that providing the needed cover for retail investors will likely open the door to more participation and adoption for Bitcoin.
5. Only a Fraction of the World Currently Owns Bitcoin
The economic properties of bitcoin, especially its scarcity, means it is almost easy to see how much ground there is yet to cover.
There is currently no clear way to figure out the number of people who own Bitcoin globally. However, assuming a high as 100 million for the sake of numbers, that would mean that roughly 1.2% of the world’s 7.5 billion population owns any quantity of bitcoin.
But stats from Bitinfocharts show that only around 28.9 million bitcoin wallet addresses are in use globally.
At this point, it is worth recalling that only 21 million BTC will ever exist with roughly 3 million orphaned coins and 3 million yet to go into circulation over the next 120 years. That leaves the current crop of users with less than 16 million BTC, a scarcity level that no existing asset class can boast.
Bitcoin’s ability to serve as a store of value (SoV) for global investors at the time of financial crisis, means growing political tensions could also play into its hands.
6. Advancement of Institutional Infrastructure
It’s either the institutions that are already into Bitcoin or they’re still preparing to get involved. But the facts suggest that institutional adoption of bitcoin is already happening.
New York-based Grayscale Investments, arguably the most significant crypto asset manager with $2.2 billion in assets, reported a $650M inflow in 2019 alone, with 71% of that amount reportedly coming from institutional investors. Interestingly too, Grayscale’s Bitcoin Trust couped $471 million inflow throughout the year, showing a growing demand for bitcoin.
Another bullish factor to consider for Bitcoin is that Grayscale is only one of the few regulated asset managers globally offering a Bitcoin-related investment product. Many countries currently do not even have as much as one of such products available.
Moving away from Grayscale, 2019 also saw the launch of another regulated bitcoin custody and futures trading marketplace, Intercontinental Exchange-backed startup, Bakkt.
Data from Bitcointradevolume shows that the trading volume on Bakkt has grown substantially since then, reaching as high as $18.8M in the last 24-hours as bitcoin approaches $9000. Although one may argue that the volume didn’t match the expected demand, it’s still the early days for Bakkt.
Meanwhile, CME Group recently added bitcoin options to its futures trading service rolled out in 2017. Per the global trading giant, there was significant demand for it by investors, and that demand has strongly been matched in the opening weeks, with their trading volume sitting at $321M in the last 24 hours.
There are also developments on the insurance and custody front, which, according to the SEC, has hindered the approval of a Bitcoin ETF. Gemini, Coinbase, Bakkt, and other foreign entities have all launched several products with the last year, perhaps directly drawing the bitcoin closer to reaching the long-awaited ETF benchmark.
Although a majority of the bullish factors that we’ve considered for bitcoin so far are still in the works, the fact remains that a massive infrastructure is being built around the cryptocurrency, and things are really yet to take off.
Putting that into perspective suggests that the current price and even a move to its former all-time high may not compensate for the work being done.
Do we have another exciting decade ahead for bitcoin? Well, the stars seem to be lined up in that direction with the only opposition, being the inherent price volatility which will rock the ship all the way to the harbor.