A bubble or a drop in the ocean? Putting Bitcoin’s $ 1 Trillion Exploit in Perspective

On February 19, Bitcoin’s (BTC) market capitalization surpassed $ 1 trillion for the first time. Although it was an exciting time for investors, it was also worried about the possibility that the asset is in a bubble.

Even though some publicly traded companies have ever accomplished this feat, unlike gold, silver and Bitcoin, stocks potentially generate profit, which in turn can be used for buybacks, dividends or to develop additional sources of income.

On the other hand, As Bitcoin adoption increases, those same companies will likely be forced to shift some of their cash positions to non-influenceable assets., which will guarantee the demand for gold, silver and Bitcoin.

In fact, the data shows that diversification between Bitcoin and traditional assets provides a better risk-adjusted return for investors, which is becoming increasingly difficult for companies to ignore.

The fact that Bitcoin’s capitalization continues to exceed the trillion dollar mark is also easy to overlook until compared to the market capitalization of other major global assets. To date, fewer than ten tradable assets have accomplished this feat..

The 20 most profitable companies in the world. Source: fortune.com

As shown in the graph, the 44 most profitable companies in the world collectively generate more than a trillion dollars in profits per year. Keep in mind that shareholders could also reinvest their dividends in shares, but part of them could end up adopting Bitcoin.

$ 1 trillion is low compared to real estate markets

The profits of the companies are not the only flows that can go to give to the scarce digital assets. Some analysts estimate that some of the real estate investment, especially the one that yields less than inflation, will end up migrating to riskier assets, including Bitcoin.

On the other hand, current holders of lucrative real estate assets may be willing to diversify. Considering the relative scarcity of available assets, stocks, commodities and Bitcoin are likely to be the beneficiaries of some of this influx..

World real estate markets. Source: visualcapitalist.com

According to the graph above, the global agricultural real estate sector is valued at $ 27 trillion. The US Department of Agriculture estimates a return on farm equity of 4.2% for 2020. Although this is very thin data, considering that there are multiple uses for agricultural real estate, it is quite possible that the sector generates more than 1 trillion dollars a year.

As Cointelegraph recently reported, there are 51.9 million individuals worldwide with a net worth of $ 1 million or more, excluding debt. Despite representing only 1% of the adult population, they collectively own $ 173.3 trillion. Even if those people are unwilling to sell assets for BTC, a paltry 0.6% annual return is enough to create $ 1 trillion.

If there is a bubble, Bitcoin is not the only participant

These numbers confirm why a market capitalization of $ 1 trillion for Bitcoin should not immediately be considered a bubble.

Perhaps the Bitcoin maximalists are right, and global assets are heavily inflated due to the lack of rare and secure options for storing wealth. In this case, that doesn’t seem obvious, a deflation of assets on a global scale would undoubtedly limit the upside potential of BTC. Unless they somehow think that a cryptocurrency can extrapolate global wealth, which would be strange.

Returning to a more realistic world view, The above comparison to stocks, agricultural real estate and global wealth also confirms how insignificant the current capitalization of $ 244 billion is for Ether (ETH), not to mention the remaining $ 610 billion in altcoins.

Assuming that none of the corporate profits or real estate performance will go to cryptocurrencies seems unlikely.. Meanwhile, an annual inflow of $ 100 billion for Bitcoin is five times greater than the 20.3 billion newly minted coins a year at the current price of $ 59,500.

For instance, 100 billion dollars flowing into Bitcoin would only be 5% of the trillion dollars of annual corporate dividends and 5% of global wealth or agricultural real estate returns. Although the impact on gold’s $ 11 trillion market capitalization would be negligible, such allocations would certainly play a vital role in Bitcoin’s path to becoming a multi-trillion dollar asset.

The views and opinions expressed here are solely those of the Author and do not necessarily reflect the views of Cointelegraph. Every investment and operation involves a risk. You should do your own research when making a decision.

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