Bitcoin at $ 1 million? Some analysts are optimistic; others warn of imminent dangers
In this photo illustration, visual representations of the digital cryptocurrency Bitcoin are arranged on January 4, 2021 in Katwijk, the Netherlands.
Yuriko Nakao | Getty Images
GUANGZHOU, China – Bitcoin could soar to $ 1 million in the long term to become a reserve currency for the world, according to an asset manager.
However, JPMorgan warned of impending risks as the cryptocurrency continues to rise.
Anthony Pompliano, co-founder and partner of Morgan Creek Digital Assets, said Bitcoin could hit $ 500,000 by the end of the decade. It could eventually hit $ 1 million a coin, he added, without specifying a timetable.
"I think bitcoin will eventually become the global reserve currency. I think bitcoin will eventually be much larger than gold market capitalization," he said on the latest episode of the CNBC podcast "Beyond the Valley".
Why does Bitcoin collect?
In the meantime, global central banks have eased monetary policy – like lowering interest rates and buying assets through what is known as the quantitative easing program – to cushion the blow to the economies hit by the coronavirus pandemic.
“There were trillions of dollars being printed and injected into the economy, and everyone from individuals to financial institutions and corporations around the world was running for the best way to protect their purchasing power. Ultimately, they decided it was Bitcoin, "said Pompliano, discussing what is behind the rise in Bitcoin.
(Bitcoin) will eventually take this place in the kingdom that is the global reserve currency of the Internet generation.
Morgan Creek Digital Assets
The Bitcoin bull's prediction that Bitcoin could hit $ 1 million is based on a number of factors including the scarcity of the cryptocurrency with a cap of 21 million coins and the decentralized nature of the technology.
There is no central authority like a central bank that controls Bitcoin.
Instead, the so-called Bitcoin network consists of miners who process transactions. These miners operate a variety of specialized computers that are required to carry out the Bitcoin mining process.
Because there are many different miners, no single entity can control the network. And because the computers they use are often very powerful machines, Bitcoin proponents claim the network is one of the strongest computer networks in the world.
"The more people come onto the market, the more liquidity there is. The more liquidity, the more benefit. The more benefit, the more stability in price. You get such a development," said Pompliano.
"When you think of this internet economy, there is no local currency … (Bitcoin) will eventually take this place in the kingdom of being this global reserve currency of the internet generation."
JPMorgan's long-term price target for Bitcoin
In January, JPMorgan released a notice to customers setting a "theoretical" long-term price target for Bitcoin of $ 146,000 as Bitcoin begins to compete with gold.
Gold is widely recognized as a "safe haven" for investors to visit during times of political turmoil or turmoil in the financial markets. Bitcoin is now starting to develop such a reputation.
"Bitcoin competes with traditional gold, Bitcoin is a form of digital gold," Nikolaos Panigirtzoglou, JPMorgan's global markets strategist, told CNBC's Beyond the Valley.
He said the value of gold that the private sector holds for investment purposes only is around $ 2.7 trillion. In order for Bitcoin's market capitalization to reach this, a price of around USD 146,000 would have to be reached.
But there are caveats, the biggest one being the volatility of the Bitcoin price. The digital coin is known for wild price fluctuations. Panigirtzoglou said Bitcoin is "five times as volatile as gold".
The key to converging bitcoin volatility with gold is institutional takeover, said the JPMorgan strategist.
"The faster the institutional takeover, the faster there will be a convergence in volatility," he said.
However, there are still risks to the current rally. While it was driven by institutional investors, retail participation was also high.
"The biggest risk is that the momentum we have seen over the past few months will slow down considerably from here," said Panigirtzoglou.
"Especially when the economies reopen, people go back to the office, they have less time to trade at home, and as a result, part of that, the retail impulse, slows down from here," he added.