The cryptocurrency market continues to defy the odds, and for one analyst, it is just the beginning.
Speaking on CNBC's Fast Money, Fundstrat Global Advisors managing partner Tom Lee said Bitcoin has the potential to rival gold as a safe haven asset, putting a lofty potential price tag on the digital currency. "There’s $7.5 trillion worth of gold out there, so gold dwarfs the amount of currency in circulation, and if Bitcoin captures five percent of that alternative currency, it could [be worth as much as] $25,000 to $50,000 a share," Lee told CNBC.
Lee began the year turning bearish on markets, saying White House turmoil, a surging U.S. dollar, and migration issues in Europe would end the decade-long stock market rally. However, despite the trouble in Washington, stocks haven't wobbled, and his prediction that the S&P 500 could fall to 2150 has died. Lee has now turned his focus to the cryptocurrency market saying Bitcoin possesses characteristics that are similar to gold, which makes it "attractive as an alternate currency." (See also: Bitcoin vs. Bitcoin Cash: What's the Difference?)
One advantage of Bitcoin is that it is a deflationary asset. The number of Bitcoins generated per block will decrease by a factor of 50 percent every four years, meaning there is a fixed supply and the price is not subject to inflation pressures. "The supply of bitcoin is starting to slow," Lee said.
"Within the next 2-3 years the number of coins discovered or mined or rewarded will actually be slower than the amount of gold discovered, so Bitcoin will be a rarer unit than gold."
In a deflationary environment, investors will tend to reduce spending and hoard cash. To mitigate these pressures, central banks will expand the money supply, which disincentives savings and encourages spending with the hope that economic growth returns. However, because the number of Bitcoins available is fixed, the supply cannot be controlled meaning it is protected against any inflation concerns. (Further reading: Why is Deflation Bad for the Economy?)
Finally, when asked to choose between Bitcoin and U.S. stocks, Lee had no hesitation in choosing where his money will be. "Between now and year end it's easily Bitcoin."