Bitcoin (CRYPTO: BTC) Has Quietly Transformed from a "Risk On" Asset to a "Risk Off" Asset

For much of its history, Bitcoin (CRYPTO: BTC) has been considered the ultimate "risk on" asset. It is highly volatile, and it is prone to boom-and-bust cycles.

The price of (CRYPTO: BTC) has come a long way since the beginning of the year. After falling to lows of around $15,000 in March, the cryptocurrency has since rebounded to levels above $50,000.

At the same time, the global economy has been hit by a series of new shocks, including the threat of new tariffs on Chinese goods. The announcement of these tariffs in May sparked a massive rally in the price of gold, which many investors view as the ultimate safe haven asset.

However, there is another asset class that could be even better suited to serve as a hedge against economic and geopolitical uncertainty: Bitcoin.

The unique characteristics of Bitcoin

The Bitcoin currency is global, digital, decentralized, and non-sovereign. The supply of new Bitcoin is carefully controlled by an algorithm, and no central bank or sovereign government can change this.

Moreover, the total lifetime supply of Bitcoin is capped at 21 million coins, and nearly 20 million coins are already in circulation. This inherent scarcity is further reduced every four years, when Bitcoin undergoes a halving event. This event, which is also controlled algorithmically, is inherently disinflationary, because it cuts the rate of new Bitcoin supply in half.

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Crypto enthusiasts have declared for more than a decade that, as a result of these characteristics, Bitcoin should be considered “digital gold.” And this argument is finally starting to go mainstream. If you dive deep enough into different Bitcoin valuation models used by top institutional investors, you’ll often find a proxy metric that takes into account the digital gold thesis.

For example, in its current Bitcoin valuation model, Ark Invest uses a metric called Digital Gold. This takes into account the total market cap of physical gold, and then projects a “penetration rate” for Bitcoin. In its bull-case scenario, this penetration rate is 60%.

This would leave the Bitcoin price at around $2.4 million by 2030, which might sound like a ridiculously high price target. But it's not as though such price targets have never been mentioned before. In fact, a price target of $500,000 might actually be on the low side. There are plenty of price forecasts out there suggesting that Bitcoin could hit $1 million by 2030.

This would also leave Bitcoin with a market cap of around $50 trillion, which is about double the current size of the U.S. stock market.

Of course, there are no guarantees here that Bitcoin will ever hit such a high price target, and the time frame could be long. But if we assume that Bitcoin will account for 50% of the “store of value” market, then we can use a scaling factor of 0.5 to arrive at an implied valuation of $10 trillion for Bitcoin. When we divide that valuation by the number of coins outstanding (approximately 20 million), that leads to a theoretical Bitcoin price target of $500,000.

This is also a multiple of the price target suggested by macroeconomic analysis. For example, in a recent note, economists at Standard Chartered pointed out that the dollar value of the world's foreign exchange reserves currently stands at around $10 trillion.

Now, if we assume that a portion of these reserves, say, $5 trillion, might shift into cryptocurrencies as a hedge against dollar-denominated market risk, we can arrive at a price target for Bitcoin of around $250,000. This price target is valid as long as the aggregate market cap of the major cryptocurrencies (Bitcoin, Ethereum, Litecoin, etc.) converges to about 20 million coins.

If the current tariff situation worsens, and money continues to flow out of dollar-denominated assets, some of that money is almost certainly going to flow into Bitcoin.

So, in a strange and surprising way, tariff uncertainty might continue to push the price of Bitcoin higher this year. The cryptocurrency is finally earning its proposed status as an effective hedge against dollar-based market risks.