Bitcoin to $1,000,000

Hello reader, welcome to the latest issue of HX Weekly!

Last May we made the case for Bitcoin to hit $100,000 in a series called The Case for Bitcoin $100,000. That is exactly what happened 6 months later.

At that point, we shared the series again and emphasized our case for Bitcoin to hit $1,000,000. 

Yes, $1 million.

We think there is real potential for Bitcoin to hit $250,000 in the coming months - yes months - and after that $1 million is on the horizon.

On Wednesday, May 20th, Bitcoin broke through the $109K barrier. Its recent previous high was just over $106K on January 21 of this year.

As we write this, Bitcoin is hovering at all-time high levels again, trading just under $112K. That represents an astonishing gain of almost 8% in less than seven days!

When you read this, Bitcoin may have smashed through $112K and climbed higher to set another record.

The fact that Bitcoin (the king of digital currencies) has done this on the day the US Treasury announced it’s killing off the penny, first minted in 1793, is some sort of cosmic irony.

At HX Research, we are students and big fans of history. The funny thing about history is that sometimes, we don't recognize historical moments when they occur, but only in hindsight.

With Bitcoin hitting new highs the last few days, we are going to re-share our notes for why we thought Bitcoin would reach $100k, and why we think Bitcoin can hit $1 million in this issue of HX Weekly.

Enjoy the notes and have a great Memorial Day!

HX Daily Redux –

The Case for Bitcoin $1,000,000 (Parts I-V)

Table of Contents:

Part One

It is useful sometimes to take a step back and think of all the incredible technological advancements that have happened in our lifetimes. 

I was born five decades ago, and 90%+ of the technology I interact with daily didn't exist just a few decades ago. Not to mention, my engagement with that technology is a hundred times what it was for my parents.

I'm not sure if that is a good or bad thing, but it certainly is where we are today.

As much as it feels very "normal" now, one of the biggest technological developments in the last few decades has been "blockchain technology"—specifically, the "cryptocurrency" Bitcoin.

This is a moment where we want you to take a step back… 

While Bitcoin seems the most ordinary thing today, imagine if I told you two decades ago that an anonymous Japanese software developer (Satoshi Nakamoto) was creating a massive mathematical algorithm for a new digital (and safe) currency.

It sounds like something from the "Matrix" movies. 

Yet here we are in 2024 with this sci-fi idea having almost a $1.3 trillion market capitalization and trading over $18 billion a day. This crazy idea is one of "The Magnificent Seven"!

It is easy for many older people to dismiss Bitcoin as a digital "fool's gold." 

It is some made-up software algorithm with no inherent value, cash flows, or history.

We don't disagree!

That being said – what is “gold gold"? It is a rare metal with minimal industrial uses that millions of people have decided to ascribe a value to for thousands of years.

This gets to our point about Bitcoin.

GOLD is "gold" because humans have decided to ascribe value to it. 

There was a real question about whether Bitcoin would ever achieve the same status we think it has.

One of the most fascinating aspects of Bitcoin is to think about the future of ownership.

Look it up, and you will see that there are currently just over 46 million Bitcoin "wallets" that own at least $1 of value in Bitcoin. In the history of Bitcoin, 460 million wallets have been created.

Let's put that in the perspective of the almost EIGHT billion people on Earth…

This means that only 0.5% of the planet's population owns Bitcoin today.

We don't know where that number will go in the future, but we are confident it will go higher.

The current market capitalization of gold is over $14 trillion or more than ten times the market cap of Bitcoin.

We think gold is excellent - and probably a buy right here – but it is not very useful. When did you last use gold to buy groceries or a car? Maybe it can be done, but it isn't very easy.

While you can't directly buy groceries with Bitcoin, it is much easier to process than gold, with future potential for a seamless process.

While Bitcoin isn't the easiest choice, it is much easier than gold!

Let's go back to the ownership numbers we discussed before…it isn't easy to get real data, but most sources think about 10% of Americans own gold in some form. That is around 33 million people or would make up 2/3rds of the Bitcoin ownership.

Again – there are EIGHT billion people on the planet! 

If just 1% decided to own Bitcoin, that would be a +50% growth in the demand, with basically no increase in supply. At this point, almost 94% of the Bitcoin that will ever be created has already been made.

Take a Bitcoin price of just about $65,000 and add +50% growth in demand with no real supply growth, and know what price target you get?

$100,000! 

We are not saying you should only own Bitcoin, or it should be even the majority of your holdings, but we ARE saying it has many upsides!

Part Two 

In yesterday's HX Daily, we began to make our case for why we could eventually see Bitcoin trade at $100,000 or greater. We also think this could happen relatively soon.

One of our key insights is that we think we will see huge growth in the demand for Bitcoin internationally.

We think this is already happening, and there is a great real-world example – the country of Turkey.

We are sure you know Turkey and its incredible history. You might not know that it is one of the largest populations and economies in the world. It ranks roughly 18^th largest on both of these measures.

It is technically considered an "upper-middle" income country with a "Purchasing Price Parity" GDP per capita of around $44,000. That is a measure that tries to adjust for the costs of everything in the country. To put this in perspective, the same measure for the United States is around $52,000. Turkey is NOT a poor country…

In recent years, though, Turkey has had massive inflation. Here is a chart…

While Turkey has seen these kinds of inflation levels in the past, they were more than two decades ago. Given the country's massive economic development, these inflation levels are certainly a surprise.

What has driven these high levels of inflation?

We could probably write several books about this subject, but the answer is simple – bad government.

In the case of Turkey, the ruling President, Recip Tayyip Erdogan, decided to reject the traditionally used policies to keep inflation down and injected massive amounts of money into the economy.

Again, we could write a ton more about the subject, but he made a bet that the traditional economic orthodoxy wasn't correct and that he could avoid the pain. He was WRONG.

This note, however, is not about Turkish economic policy but rather how the population of Turkey has been reacting to the situation.

Traditionally, during hyperinflation, folks would work to move their assets out of the country, move into hard assets (real estate), and buy other "store of value" assets like gold and the US dollar. (That last one may be a questionable "store of value" going forward, but historically, this is what has happened.)

All of those things happened with this current bout of inflation. Something new also happened, though – they bought Bitcoin. A lot of Bitcoin…

Now, it has not only been Bitcoin, but they have also bought other cryptocurrencies, including ones connected to the US dollar and called "tethered" coins. 

One of the significant drivers of this movement towards cryptocurrencies by Turkish citizens has been the restrictions the Turkish government has put on the trade in gold. Gold smuggling has become a big thing in Turkey, and the government reported they have seized 350 kilograms just this year.

While there are ways the government can get involved in regulating cryptocurrency and Bitcoin, it will be considerably more difficult.

This is what is driving the demand amongst Turkish citizens.

In a recent survey, 58% of Turkish investors viewed crypto as a long-term wealth-building tool. Another 37% regard it as a hedge against the continued devaluation of their currency. Almost three-quarters of these investors have focused on Bitcoin.

Now, there are many elements in this equation. Without a doubt, the Turkish government will look to curtail the ability of their citizens to move all of their wealth into crypto and Bitcoin. There are several things that they can do, and some of them will have an impact.

Ultimately, though, this is what Bitcoin was built for – situations like this!

The last element to consider goes back to the math we put in our previous piece about Bitcoin. The percentage of people on Earth who are currently involved. It is less than 0.5% of the world's total population.

Turkey is just one country, but look globally at aging populations, expansionary monetary policy, and poor governments. Ask yourself – do we think we will see more situations like Turkey or less in the coming decades?

We think the answer to that question is pretty obvious…

This is also why we think that eventually, the global demand for Bitcoin – with minimal supply – will result in much higher prices for Bitcoin in the future!

Part Three

Before 2021, "cryptocurrency" and "bitcoin" were terms and concepts most investors had heard about but weren't actively involved in.

But as we kicked off this year, interest in this corner of the market has exploded.

There are many reasons behind this, including increased interest in investing across the board, fears about unlimited printing of government fiat currencies, and a series of endless tweets by entrepreneur and Tesla (TSLA) CEO Elon Musk.

As a result, most folks are familiar with the massive volatility that this sector has seen over the past few weeks. Just look at this chart of Bitcoin...

The emergence of this asset class has allowed many investors to make (and lose!) a tremendous amount of money and to do so quickly. It also has created an incredible trading vehicle for those with a real plan.

So, given the recent volatility in the sector, here are three factors to consider when deciding how to handle it...

1. Remember That Volatility is Symmetrical

This is a simple concept... An asset like Bitcoin that goes from $10,000 to $60,000 in six months can quickly go to $30,000 in six weeks.

Compare this with a mega-cap stock like tech giant Apple Inc. (NASDAQ: AAPL). The most that Apple trades in a day is a couple of percentage points one way or the other. This means you're highly unlikely to make double-digit returns in a short time frame... And triple-digit returns can take years. Apple offers less upside in a short time frame and far less risk.

As an asset class, crypto is different. It's much less mature, with much less institutional support and many individual – and less sophisticated – investors. "Less sophisticated" shouldn't be taken as an insult, but these types of investors act more emotionally as a group and tend to buy as the asset hits new highs and sell when it sharply corrects. "Buy high, sell low" is never where you want to be.

Crypto assets have huge volatility, so don't be surprised by massive moves in either direction.

2. Understand the Volatility in Order to Manage It

One of the biggest misunderstandings about the recent volatility in crypto is that it's only happening because of tweets by Musk or comments by the Chinese government about a crackdown on Bitcoin mining. But this isn't the real story...

The reason crypto has been so volatile (and to the downside) is because of the liquidity setup that occurred because of the enormous run higher.

Let's consider ethereum. At the start of the year, it was trading for less than

$800 and peaked at more than $4,000 five months later. Many investors made a lot of money. But as it increased, many – if not most – folks bought at higher and higher prices.

Investors were buying because Ethereum was going up. Once this momentum was exhausted, these folks lost their reason to own the asset. If Ethereum wasn't going up anymore, they were ready to jump ship, and they bought in at high prices.

This is why we say that when an asset is highly overbought – with a relative strength index ("RSI") greater than 90 – it never consolidates by going sideways initially... It goes lower.

If you don't sell high when the assets reach these overbought levels, you leave yourself vulnerable to losses – the size of which you may not be willing to stomach.

The Musk tweets and comments by the Chinese government were just the spark. The tinder was the incredibly overbought situation.

3. Plan the Trade and Trade the Plan

The first key here is position sizing. While some intrepid folks are willing to live through 20% daily swings in the net worth of their investing portfolio, that doesn't represent most investors.

The best way to handle highly volatile assets like cryptos is to keep the positions appropriately sized.

Do the following exercise: say to yourself, "What if this asset were to get cut in half in a day? What level of loss to my overall portfolio would I be willing to stomach and still add to the position? Would I add 5%? What about 10%?"

Based on this exercise, size your position appropriately so you're on the right side of your emotions when dealing with losses.

Another key is to break your position into a "trading" portion and an "investing" portion.

With your investing portion, you should have a long-term view. If that's how you view crypto, don't even look at the day-to-day price swings.

But if you're trading, be sure to trade. One of the biggest mistakes folks make with "buy low, sell high" is forgetting to sell high...

If you're selling Bitcoin at $60,000, buying it at $30,000 is much easier.

The worst – and most common – mistake of traders is going in as a "trader" and coming out as an "investor" when the position goes against them.

I don't think the major cryptocurrencies are frauds or Ponzi schemes. There are legitimate reasons why investors – and institutions – will continue to utilize them. With a market cap in the trillions, they aren't going away.

They also represent an incredible opportunity for individual investors – and traders – to make money. But this needs to be done with a plan... And you, as a trader, need to be appropriately prepared.

Part Four

We don’t know about you but in our entire educational history, we never really received any teachings about the history or value of gold.

Now, the fact that we didn't learn anything about it in high school is not that surprising. There is minimal education about financing (or anything financial) in our primary education system, and it is one of the great tragedies and challenges of our education system.

For college, however, I attended the Wharton School at the University of Pennsylvania. Now obviously I am biased, but Wharton is widely considered one the (if not THE) best business school programs out there.

In particular, it specializes in the study of finance. Alumni include Peter Lynch, Donald Trump, Elon Musk and Warren Buffett!

Classmates of mine from the early 1990s currently manage over $1 trillion of assets. Real number…

At Wharton, I was a pretty decent student. After adjusting in my first couple of years (and to fraternity life!), across my last couple years had 4.0 GPA and graduated Cum Laude. I actually loved what we were learning, so I paid a lot of attention.

In all that time at Wharton, do you know how many times I remember them discussing "gold"? NOT ONCE.

Now maybe they did in one of my many finance courses and certainly it was part of some advanced portfolio allocation analysis.

In terms of an actual conversation about why gold was valuable? How it was used? The history of gold? Nothing.

Now, again – it has been three decades since I graduated but the fact that not a single memory comes back to me about teaching about “gold” says a lot.

As part of this week's series on Bitcoin, we did quite a bit of research about gold. Some of what we learned surprised us…

One interesting aspect about gold is that while we think of it as always having value as currency or a “store of value”, that aspect is likely only 3500 years ago.

Gold had been around for thousands of years prior for use in jewelry, but it wasn't until the ancient Egyptians (using the gold from Nubia) began to use it as a medium of exchange. The initial medium was a coin called a "shekel" which was a combination of both gold (2/3^rd ) and silver (1/3^rd ).

The use of gold as a part of currency would continue with many cultures including the Romans and most countries across the Western world. It also eventually moved over to other parts of the world across several centuries….

Another interesting note, though, is that almost none of these countries used gold as their primary currency. It was too rare and difficult to work with, so most of these countries relied on both silver and bronze.

Gold certainly played a role, but by no means the primary role in early currencies and as a “store of a value”.

This began to change with the United Kingdom. As the country ascended to a period of global dominance, they instituted a system where gold was used as a medium of "constant" value of exchange between countries all over the world.

As global trade began to expand, then it became necessary to have this medium of exchange. Interestingly, many countries also kept large stores of silver as a proxy for gold.

Up until 1850, only Britain and some of its colonies were on the gold standard. The other used silver and/or a mix of metals. The "gold rush" in the United States, though, lead to a much more dramatic uptake in the use of a gold standard.

Beginning in the late 1800s, most companies began moving to some sort of gold standard. It started in Europe and then expanded to Asia by the early 1900s. That was only about a century ago.

The reality is that it was really only about a seventy-five year period where gold ascended to this status as the universal global “store of value” and use as currency.

What ended it? War.

Once World War I began and sent economic ramifications across the world, the governments lost some of their control over their economies. By holding to the gold standard, they were unable to help their economies as much as they could prior.

Legally many countries maintained a gold standard but the reality is that they were departing substantially from really adhering to it. The Great Depression further put a dent into the adherence of this idea.

This was cemented when President Franklin D. Roosevelt officially departed from the gold standard upon taking office in March 1933. This allowed the government to devalue the dollar against gold and begin to attempt to stimulate the economy.

After this there were other systems including the Bretton Woods international monetary agreement of 1944 that maintained some role for gold in the currency system. At this point, though, the US dollar became more important than gold as a medium of international exchange.

These ties continued until roughly 1976, when the US officially changed the definition of the US dollar to remove the references to gold from the standards.

Now – this is important for us to say – we know that there are many of our readers out there that know 100 times more about the history of gold. We have presented a VERY abridged version of it here and its role in both history and the economy.

There also are many theories about what role gold should play in the economy now, and in the future. We are not weighing in on any of those ideas in this note.

Our point is the following – gold has had “value” for about 3500 years, was really adopted as currency about one hundred and fifty years ago and that period lasted roughly one hundred years.

At which point it was replaced by the US dollar which has now been in a dominant position for the last seventy five years.

Again, there are major debates about whether that will last and what happens next.

Our major point – from our learnings about gold (and the US dollar) – is that “store of value” can be more transient and fluid than we think…

We mention this not because we think that either gold or the US dollar is likely to lose a huge amount of value anytime soon but rather because we think it helps make the case for why Bitcoin could GAIN it.

If gold only held the position for roughly a century and the US dollar for seventy-five years, why couldn’t something NEW ascend for the next fifty years in the digital age?

In tomorrow’s final note on “Bitcoin $100,000” we will share an example of how this can happen.

Part Five

 Admittedly, we came to an understanding of cryptocurrency and Bitcoin late. Especially relative to some of my colleagues.

One young colleague at my hedge fund in the early 2010s was involved.

I am unsure whether he is more or less disappointed about it than I am. I never bought any, so I neither lost nor made any money.

I'm reasonably sure he owned a LOT! However, I also think he sold it after he made a few million dollars. That is nothing to dismiss, but I believe that stake today is worth a few BILLION.

The truth is that as much as Bitcoin has become well-known to people worldwide, it is still not REALLY understood by the masses. We also think Bitcoin's "big picture" is lost in much noise.

This week's goal was to cut through some of that noise and discuss these high-level perspectives and why we think it can go much higher.

In Part One, we went through some basics of Bitcoin and the math of the current ownership relative to the world population.

In Part Two, we discussed how Bitcoin was being used in Turkey and a perspective that many people in the Western world might not have regarding its value.

In Part Three, we went back to 2021 and talked about the rise of Bitcoin and how to trade it.

In Part Four, we outlined a (VERY brief) history of gold as a "store of value" and currency along with the US dollar. Our point is that neither has had that status for long when looking at it over a more extended period.

Today, in Part Five, we want to share how yesterday's note might play through and accelerate the demand for Bitcoin.

We are sure you have heard of the country of El Salvador. It is a Central American nation that is roughly the size of Massachusetts in terms of population (6.5 million) and geography.

The country has had a tumultuous history of military and gang violence and suffers from extreme poverty.

If you remember our note about Turkey and the roughly $40,000 GDP per person on a "PPP" basis (adjusting for cost of living), the same number in El Salvador is about $10,000. This is a POOR country.

Poverty and violence can lead to a population willing to take some political risks. The country did so in 2019 when it elected a relatively unknown 38-year-old named Nayib Bukele as President.

There are many interesting aspects to this story. Still, for our purposes, we will focus on only one…in 2021, Bukele and the government decided to make Bitcoin "legal tender."

What does that mean?

Think of it this way…here in the United States, if you go to the local grocery store and buy something, you pay for it in US dollars. You might use a credit, debit card, or even a personal check, but it is all in dollars.

If you went to the store and tried to give them British pounds, Euros, or Mexican pesos, they would tell you “no.” It wouldn't matter whether you would pay them two or even ten times the value; they wouldn't take it.

(We are sure some small stores might be willing to go through the trouble to take it and convert it, but 99.9% would not.)

Also, if you went to the grocery store and tried to pay in GOLD, they would tell you “no.”

The Bukele government issued a mandate that said that Bitcoin would now be allowed (and promoted) for use as legal tender.

There are many levels to this story. First, the US dollar is already in use as the country's "official currency," so it was prepared to use a foreign currency as legal tender.

The US dollar is an ordinary currency and certainly not a digital one.

To promote the roll-out of Bitcoin to the populace, the government introduced an application called the “Chivo Wallet.” Anyone with any type of smartphone can download it. They also gave out $30 in Bitcoin to anyone who downloaded the application.

In a country where the average monthly earnings are about $365, that is a decent amount of money.

How did it go?

Honestly, not that well!

The application was put together quickly and has had quite a few issues.

About 68% of the potential users were aware of the "Chivo Wallet," and 78% tried to download it. Despite some other incentives (discounts on gas purchases and no transaction fees), about 20% of the folks who downloaded it have never used it.

Another 20% of people knew about it but didn't even bother downloading it. There were lots of reasons, including distrust of cryptocurrency and the government. Many of them just couldn’t be bothered.

While there have been quite a few enthusiasts (primarily young men and foreigners), it appears that Bitcoin has had a negligible impact on the economy of El Salvador.

The country itself has also been buying Bitcoin. With a $25 billion debt load (relative to a GDP of $33 billion), there has been much criticism of using valuable cash reserves to buy this volatile asset.

With the recent highs in Bitcoin, the idea is looking better, and if we are right about the price of Bitcoin, it might end up being brilliant.

It also could be disastrous.

We think the Bitcoin "experiment" in El Salvador is still very much in question. It has only been a few years, and you are dealing with a very impoverished and minimally educated population.

That being said, what is to stop OTHER countries from doing the same thing?

Eleven countries use the US dollar as legal tender, which is accepted as currency in almost every country.

When you think about that, think about the chart below…

This is from the St. Louis Federal Reserve Bank and shows the amount of US dollars in circulation. Notice a pattern?

With Bitcoin, we have seen 93.8% of all the Bitcoins that will ever be mined already. The amount will go up also, but not like the US dollar. There is no limit to how many more dollars can be put out there…

Will countries around the world take on Bitcoin as legal tender? Will it be used for global trade in the same way as the US dollar? Who knows!

However, we think it has a good shot of heading in that direction. If that is the case, it should play a role in YOUR portfolio.

We hope that you’ve enjoyed this week’s issue of HX Weekly…