On February 19, Bitcoin’s (BTC) market capitalization exceeded $ 1 trillion for the first time. While this is an exciting time for investors, it has also worried investors that the asset is in a bubble.
Although a handful of listed companies have never achieved this feat, unlike gold, silver, and Bitcoin, stocks potentially generate profits, which in turn can be used for redemptions, dividends, or for develop additional sources of income.
On the flip side, as the adoption of Bitcoin increases, these same companies will likely be forced to move some of their cash positions to non-inflatable assets, thus securing the demand for gold, silver and Bitcoin. .
In fact, the data shows that diversifying between Bitcoin and traditional assets offers better risk-adjusted performance for investors, which is becoming increasingly difficult for companies to ignore.
Bitcoin Continues to Break Above the Trillion Dollar Bar is also easy to ignore until compared to the market capitalization of other major global assets. To date, less than ten tradable assets have achieved this feat.
As noted above, the 44 most profitable companies in the world combined generate more than $ 1 trillion in profits per year. Keep in mind that shareholders might as well reinvest their dividends in stocks, but some could end up in Bitcoin.
$ 1 trillion is small compared to real estate markets
Corporate profits aren’t the only flows that can trickle down to scarce digital assets. Some analysts believe that some real estate investment, especially those that pay less than inflation, will eventually migrate to riskier assets, including Bitcoin.
On the other hand, current holders of lucrative real estate assets might be willing to diversify. Given the relatively scarce available assets, stocks, commodities and Bitcoin are likely beneficiaries of some of this influx.
According to the chart above, global agricultural real estate is valued at $ 27 trillion. The US Department of Agriculture estimates a return on farm equity of 4.2% for 2020. Although very raw data, given the multiple uses of farm real estate, it is entirely possible that the industry will generate over $ 1 trillion per year.
As recently reported by UKTN, there are 51.9 million people in the world with a net worth of $ 1 million or more, excluding debt. Although they represent only 1% of the adult population, they collectively hold $ 173.3 trillion. Even if they are unwilling to sell assets in exchange for BTC, an insignificant 0.6% annual return is enough to create $ 1 trillion.
If there is a bubble, Bitcoin is not alone
These numbers confirm how a trillion dollar market cap for Bitcoin should not immediately be viewed as a bubble.
Maybe these Bitcoin maximalists are right and global assets are inflated sharply due to a lack of rare and safe options for storing wealth. In this case, which does not seem obvious, a deflation of assets on a global scale would certainly limit the upside potential of BTC. Unless they think one way or another, a cryptocurrency can extrapolate global wealth, which seems odd.
Returning to a more realistic world view, the above comparison with stocks, farm real estate, and global wealth also confirms how insignificant the current $ 244 billion Ether (ETH) cap is, without talk about the remaining $ 610 billion in altcoins.
Assuming that none of the company’s profits or real estate yield will be allocated to cryptocurrencies, this seems unlikely. Meanwhile, an annual inflow of just $ 100 billion for Bitcoin is five times greater than the newly minted $ 20.3 billion per year at the current price of $ 59,500.
For example, $ 100 billion going into Bitcoin would only represent 5% of the $ 1 trillion in annual corporate dividends and 5% of global wealth or farm real estate returns. Even if the impact on the $ 11 trillion market capitalization of gold would be negligent, such allocations would certainly play a critical role in Bitcoin’s path to becoming a multibillion dollar asset.
The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of UKTN. Every investment and trading move involves risk. You need to do your own research when making a decision.