According to Fidelity Investments, this is the 1 top cryptocurrency to buy before its value increases by another $500 billion

With Bitcoin (BTC -1.05%) Given the rapid price rise, analysts and traders are now increasing their predictions of how much higher this cryptocurrency could rise. While some of these predictions sound like unrealistic wishful thinking – such as claiming that Bitcoin's value will rise to $1 million within a few weeks – there are actually some predictions that are far more realistic.

Take, for example, Fidelity Investments' recent prediction that Bitcoin could soon gain another $500 billion in market capitalization. Given Bitcoin's current price of $50,000 and a market cap of $1 trillion, this would mean that Bitcoin's value could soon rise to $75,000 and a market cap of $1.5 trillion. That would be just enough to push Bitcoin above its all-time high of $69,000. So is Fidelity right?

Bitcoin as digital gold

Fidelity Investments' valuation forecast is based primarily on a single observation: For many investors, Bitcoin is increasingly replacing gold as a store of value and protection against inflation. This makes sense in a way, as Bitcoin has long been referred to as “digital gold.” As a result, analysts have often used the size of the gold market as a frame of reference for how valuable Bitcoin could become in the future.

Image source: Getty Images.

Of course, it's hard to imagine a future in which Bitcoin completely replaces gold, but Fidelity now estimates that Bitcoin could account for 25% of the monetary gold market, which is defined as the gold held by central banks, major financial institutions and governments becomes . Quite simply, instead of buying gold as a hedge against future economic uncertainty, these institutions will soon be buying Bitcoin. Given the size of the monetary gold market at around $6 trillion, this change in strategy could lead to massive new purchases of Bitcoin.

How realistic is the 25% number?

On the surface, the 25% figure sounds absurd. It's hard to imagine Federal Reserve Chairman Jerome Powell arguing the merits of Bitcoin over gold, or major Wall Street institutions fully embracing Bitcoin as a store of value. But you might be surprised by what the current numbers tell us.

For example, if you accept the argument that Bitcoin is “digital gold,” all you need to do is compare the current valuation of Bitcoin with the valuation of the monetary gold market. This will give you a rough idea of ​​Bitcoin's current market share. And guess what? Bitcoin's current value of $1.2 trillion is almost exactly 20% of the $6 trillion monetary gold figure used by Fidelity. So it doesn't sound particularly implausible to increase the value from 20% to 25%.

Additionally, when Fidelity's assumptions are stress tested against those of other Wall Street institutions, they actually appear somewhat conservative. In 2022, for example Goldman Sachs predicted that Bitcoin would eventually account for 50% of the monetary gold market, giving Bitcoin a nice round price of $100,000. And in its 2023 Big Ideas report, Ark Invest assumes a market share of 20% in its bear case, 40% in its base case and 50% in its bull case.

Is Bitcoin more than just digital gold?

The more you play around with the numbers, the higher Bitcoin's true valuation actually appears to be. Keep in mind that the idea that Bitcoin could gain another $500 billion in market cap is based primarily on the “digital gold” argument. This does not take into account the new spot Bitcoin ETF inflows or the upcoming Bitcoin halving. And it doesn't take into account Bitcoin's growing role in the global economy. Taking all these factors into account, Bitcoin's future valuation appears to be almost limitless.

But just a caveat here: It's easy to fall into the trap of thinking that Bitcoin is worth more than it actually is. During the last crypto bull market cycle, Fidelity Investments, for example, famously predicted that a single Bitcoin would be worth $1 billion by 2038. So be careful with the numbers and assumptions you use.

However, it is difficult not to be bullish on Bitcoin at the moment. With major Wall Street institutions now supporting Bitcoin and developing new investment products for it, the future potential of this cryptocurrency appears to be enormous.

Dominic Basulto has positions in Bitcoin. The Motley Fool has positions in and recommends Bitcoin and Goldman Sachs Group. The Motley Fool has a disclosure policy.

Learn Crypto Trading, Yield Farms, Income strategies and more at CrytoAnswers
https://nov.link/cryptoanswers