The Case for BITCOIN $100,000 – Part Five

Back in May of this year, we ran a series of notes outlining why we thought that Bitcoin could reach $100,000 by year-end.

Given the recent move in Bitcoin, we are going to share these notes again this week.

We are much more confident in our view than ever before.

Bitcoin is hitting new highs and higher gold prices along with a new cryptocurrency-friendly Trump administration make us even more BULLISH.

We also want to share the view that we think Bitcoin $100,000 is just the first step to Bitcoin $1 million!

Compared to many folks, we came to an understanding of cryptocurrency and Bitcoin late and especially relative to some of my colleagues.

One young colleague at my hedge fund in the early 2010s was super involved. Funny enough, though, am unsure whether he is more or less disappointed about his involvement than I am about being NOT involved.

I'm reasonably sure he owned a LOT and think he sold it after he made a few million dollars. That is nothing to dismiss, but I believe that stake today is likely 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 U.S. 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 U.S. 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 U.S. dollar is already in use as the country's "official currency,” so it was prepared to use a foreign currency as legal tender.

The U.S. 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 U.S. 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 U.S. 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 U.S. 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 U.S. 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.