Tyler and Cameron Winklevoss, the co-founders of crypto exchange Gemini, believe that Bitcoin is tremendously undervalued as long as it trades below $500,000.
In a lengthy blog post, the Winklevoss twins elaborately explain how the monetary policies of the US government and Federal Reserve have made the prospects of hyperinflation very likely. The Bitcoin entrepreneurs say US debt could swell to $29 trillion in 2021 from $22 trillion at the start of the year. The twins also point out that in an effort to monetize debt, the Fed has significantly grown its balance sheet from around $2 trillion in 2010 to over $7 trillion this year.
With the emergence of Covid-19, the Winklevoss twins say the world is now facing a mountain of debt.
“From 2009 to 2019, the U.S. debt-to-GDP ratio swelled from 83% to 106% –post-COVID it’s on track to hit 135% by September of this year. To bottom-line this, the U.S. debt-to-GDP ratio will grow more this year than it did over the entire prior decade. China’s debt-to-GDP ratio was 300% entering COVID and has grown to 318% as of Q1 2020. The rest of the world is not faring any better.”
While there are several options to deal with the massive debt, the BTC magnates note that the government will likely pursue a strategy that will reduce the value of the US dollar through inflation.
“When a central bank elects to pursue a soft default strategy, it targets a particular inflation rate and proceeds to print enough money to hit it. Once reached, this target inflation rate reduces a government’s debt obligations by the same rate.”
As inflation rears its ugly head, the Winklevoss twins predict that investors will seek refuge in store-of-value (SOV) assets.
Although gold is the tried and tested hedge against inflation, the early BTC investors point out that the precious metal is inferior compared to Bitcoin in many aspects, including supply and portability. Gold’s supply may be scare on Earth but it is abundant in outer space. Also, gold can be very difficult to move in times of crisis.
Meanwhile, BTC’s supply is forever fixed at 21 milllion. The king crypto can also easily be transferred anywhere around the globe 24/7.
Because of BTC’s advantages, the twins believe that the top cryptocurrency will cannibalize gold’s market cap of $9 trillion.
“If we are right about using a gold framework to value Bitcoin, and Bitcoin continues on this path, then the bull case scenario for Bitcoin is that it is undervalued by a multiple of 45. Said differently, the price of Bitcoin could appreciate 45x from where it is today, which means we could see a price of $500,000 U.S. dollars per Bitcoin.”