Sometimes investors are reluctant to buy assets that have risen significantly in price.
Take bitcoin… It rose from a low of less than $3,300 to $12,500 from December 2018 to July 2019.
That massive rally has given many investors pause. But if you haven’t invested in bitcoin yet, you’re running out of time.
As I’ll explain today, Wall Street is coming to the crypto space. And there won’t be enough bitcoin to go around.
This will send prices soaring faster than anyone expects…
Just about every big bank on Wall Street is working on a way to enter the cryptocurrency space. The most visible of these is the upcoming bitcoin exchange Bakkt.
Created by Intercontinental Exchange (ICE) – the team that operates the New York Stock Exchange – it could launch as soon as September 23. It’s exactly what the crypto space needs.
Finally, Wall Street money managers will have a place to buy and store bitcoin that’s as trusted and secure as the NYSE itself.
As soon as it launches, massive amounts of money could start flowing through it. For a lot of institutional or big-money investors, this will be the first time they can safely and easily buy bitcoin.
And Bakkt is only the beginning.
Asset manager Fidelity, which has $2.5 trillion under management, is working on a similar platform. Meanwhile, investment bank Goldman Sachs has partnered with BitGo (a blockchain security company)… And Japanese investment bank Nomura has partnered with Ledger, which makes hardware to protect cryptos. Several stock exchanges will soon offer crypto trading, too, including TD Ameritrade and E-Trade.
In short, trillions of dollars are headed for the crypto space. This will push prices up rapidly.
But I believe they’ll climb faster than anyone expects because of one big bitcoin misconception…
You’ve likely heard the term “market capitalization.” That’s the total dollar value of a company’s outstanding shares.
Stock investors rely on market capitalizations for a quick check of the size of a company. Bigger companies have been around longer and may be more successful, while smaller companies may have more growth potential.
It’s a useful (if basic) parameter for crypto investors, too.
Generally, when we talk about market cap for cryptos, we mean the price of the token multiplied by the circulating supply of the token. “Circulating supply” is the total supply of tokens currently available to the market. And you can find the price by looking at real-time data from many different crypto exchanges.
However, circulating supply is difficult to determine for two reasons. First, most cryptos are designed to continuously issue new tokens or coins on a routine basis. For example, the bitcoin network rewards miners with 1,800 newly created bitcoin every day.
But the big reason circulating supply is hard to calculate is because even though most cryptos are on public ledgers (which means that anyone can track them), there’s no easy way to know how many cryptos are truly circulating.
Because bitcoin has a fixed supply, only 21 million will ever be mined. Right now, there are more than 17 million bitcoin in existence.
So let’s say two investors each bought one bitcoin a few years ago. One of the investors plans to hold on to his bitcoin as a long-term investment. His bitcoin is safely tucked away in a digital wallet that’s not connected to the Internet. And he won’t sell or spend it for a long time – if ever.
The other investor is careless and loses his private key. So he can no longer access his bitcoin. In other words, he can’t sell it or spend it, even if he wanted to.
According to CoinMarketCap – the most popular website for crypto investors to get information – the circulating supply of bitcoin includes the holdings of both of these investors. After all, there’s not a great way to determine who can still access their bitcoin and who can’t.
This is important because we’re not just talking about two investors. We’re talking about potentially millions of coins – worth billions of dollars.
Around 5 million bitcoin are in the hands of investors who have no intention of ever selling.
And nearly 4 million bitcoin have been lost, according to software company Chainalysis. Their investors lost their passwords, or they lost their wallets or laptops completely.
That’s 9 million bitcoin altogether… more than half of the 17 million bitcoin that have ever been mined.
But these are still included in the “circulating supply,” and the market cap calculation is based on that. That means the calculations are misleading. Many of those tokens are likely lost forever.
The crypto space is working on different ways to take this into account. But it has to figure out a new way to calculate market cap that investors would find reasonable.
Just to be clear, this would have no effect at all on the underlying technology and development of cryptos. But what would investors do if they suddenly realized there were half as many bitcoin available than they previously thought?
I believe they would clamor to buy bitcoin as these coins become scarcer – sparking a rally in the crypto space. That could happen as this knowledge spreads.
And no matter whether the circulating supply of bitcoin is 17 million or 9 million… Wall Street is investing in the crypto industry. Very soon, crypto will see a flood of new investors… and there won’t be enough bitcoin to go around.
So if you haven’t invested yet, now is the time.
Good investing,
Eric Wade
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Source: Daily Wealth