By Key Points
A brutal crypto winter has persisted for much of the year.
The sector bounced back in August, due to renewed interest in digital assets and potentially favorable regulatory developments.
Analysts are becoming more bullish.
- 10 stocks we like better than Bitcoin ›
It’s been a rough year for crypto.
The sector entered a bear market that felt different from past cycles, as crypto seemingly lost some of its appeal amid newer, perhaps more exciting technologies like quantum computing and artificial intelligence.
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But most bulls haven’t given up, believing that this cycle will be no different from past cycles and that crypto will rebound to hit new highs. Here’s one top cryptocurrency to buy before it reaches $1 million per coin by the year 2033, according to one analyst.
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Is the debasement trade back?
Bitcoin (CRYPTO: BTC), the world’s largest token by market value, took a big hit this year. After reaching an all-time high of more than $126,000 per token last October, Bitcoin fell below $60,000 at one point this year.
Not only did some of the factors mentioned above hurt the coin, but Bitcoin also seemed to act more like a tech stock in response to the Iran war, facing pressure related to elevated inflation, rising oil prices, and higher long-term interest rates.
This called into question whether Bitcoin and its finite supply of 21 million coins really could be used as a form of digital gold and serve as an inflation hedge.
However, Bernstein analyst Gautam Chhugani and his team think this thesis may be resurfacing. They recommend buying Bitcoin as a way to hedge against U.S. currency debasement that erodes the dollar’s value.
U.S. debt recently topped $40 trillion, and soaring long-term bond yields have added pressure to the situation.
“While governments are already using measures to manage bond markets and contain yield pressures, these interventions only address symptoms rather than the underlying debt burden,” Chhugani wrote in a research note.
Some experts and investors believe the government will have no choice but to run the economy hot to try to grow its way out of debt, which will naturally lead to a weaker dollar and greater concern about currency debasement.
Chhugani sees debasement as an easier approach to the debt situation than fiscal discipline. “Hence, investors will potentially benefit from owning scarce assets such as bitcoin that cannot be easily created/diluted,” Chhugani wrote.
Although Bitcoin has taken a beating for much of the year, Chhugani notes that 60% of investors have held it, suggesting continued belief in Bitcoin as a hard asset.
Recently, Bitcoin has rebounded and is trading at about $78,000 per token (as of Aug. 28). Investors are hopeful about a looming vote on the Clarity Act, which would establish a regulatory framework for the industry.
There has also reportedly been a huge Bitcoin short squeeze, while renewed conversations about higher bond yields and mounting debt have pushed the digital gold theory back into the spotlight.
Chhugani has laid out “an accelerated bull case” scenario, in which macro factors lead institutional investors to chase Bitcoin. In this scenario, Bitcoin could peak at $500,000 by 2029, then reach $1 million by 2033.
The base case suggests $300,000 per token by 2029, but still $1 million by 2033. Chhugani and his team value Bitcoin as a multiple of its marginal cost, or the miner who generates new Bitcoin tokens at the highest cost. The $1 million price target assumes a 1.2 marginal cost multiple.
Think long-term, but not in price targets
As I’ve said numerous times before, investors should be wary of crypto price targets. Bitcoin and other cryptocurrencies are extremely volatile and don’t generate earnings or free cash flow like a traditional company to use in calculating valuation.
On the other hand, I don’t think the digital gold thesis is dead yet, even if Bitcoin doesn’t always appear to serve as an inflation hedge. It’s worth noting that gold has also struggled since the Iran war, and is up just 8% this year.
Perception may turn into reality, and younger generations could be more prone to buy the internet-native Bitcoin as an inflation hedge over gold.
Furthermore, I would agree with Chhugani that the government is likely to prefer debasement over fiscal restraint, which would be much more painful for citizens and likely lead to popular backlash.
Investors should hold at least some Bitcoin in their portfolios, although I wouldn’t make it an overly aggressive position just yet.
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Bram Berkowitz has positions in Bitcoin. The Motley Fool has positions in and recommends Bitcoin. The Motley Fool has a disclosure policy.
