Bitcoin is currently the hottest topic in the markets.
And while some renowned investors called Bitcoin a “fraud” and a bubble, Fundstrat’s Tom Lee made his point at Yahoo Finance All-Market Summit Wednesday cryptocurrency is an important asset for investors to own.
“I think cryptocurrencies are a very important technology,” Lee said.
“It’s a huge revolution in terms of decentralized control. It’s finally biomimicry in the technology industry. A proper structure to maintain encryption and security. But due to the nature of blockchain, it is also an asset class.
“And I think this year has proven that Bitcoin is not correlated to stocks, gold, interest rates and commodities. This is, I think, an important security for investors to hold.
Lee also explained how Bitcoin follows Metcalfe’s Law, which essentially defines the value of a network based on the number of users it has.
“If you model something as simple as the square of the number of users plus the transaction value, that explains 94% of (Bitcoin’s price appreciation) this year,” Lee said.
And this chart from an earlier research note published by Fundstrat describes this dynamic of use of the Bitcoin network and the increase in its price.
Lee set a price target of $25,000 for Bitcoin by 2022 in a note to clients published earlier this year. This view is based on cryptocurrencies replacing gold in wallets, with Bitcoin serving as a “digital store of value”.
After starting 2017 at nearly $1,000, Bitcoin prices have soared to nearly $6,000 as the cryptocurrency has become the most talked about asset today. This meteoric rise has of course brought out the skeptics.
But for Lee, Bitcoin and the blockchain technology that guarantees it “represent an improvement in digital trust”. And even a flattening of Bitcoin’s popularity, or a decrease in support for Bitcoin among investors, will see the cryptocurrency’s value hold.
“Using a 90% deceleration of both factors (in Metcalfe’s Law) next year, you’ll get $6,000 by mid-2018,” Lee said Wednesday.
“So basically we’re saying Bitcoin is going to hit a wall and Bitcoin will still be at $6,000.”
Myles Udland is a writer at Yahoo Finance. Follow him on Twitter @MylesUdland
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