The famous bitcoin bull, Thomas Lee, Managing Partner and Head of Research at Fundstrat Global Advisors spoke about the economics of cryptocurrencies and bitcoin at the Upfront Summit last year. He said that the millennials are the driving force of this asset class and this generation cohort, that was born between 1981 to 2000, will drive the price of bitcoin to $10 million dollars.
Tom said that crypto assets have been remarkably contrarian and they have never seen clients disagree with them so strongly. Part of this has to do with the fact that the formation of capital around crypto just hasn’t followed past cycles. Cryptocurrencies like bitcoin essentially needed zero dollars to start so it didn’t start with a venture capital or private equity investments and it didn’t go public to raise more money. He covered four topics with regard to cryptos assets in his presentation:
- Digital trust and why digital trust is important today
- Bitcoin is a millennial phenomena
- Cryptocurrency as an asset class
- Wall Street & bitcoin
Tom Lee’s Presentation at Upfront Summit
It’s an old but great presentation and can be viewed below:
Talking about the digital trust, he said that we tend to be very confident about the financial system in the U.S. because we know it works fairly well but in a world that’s increasingly digital, with the five largest technology stocks in the S&P 500 essentially all native digital businesses, digital trust is increasingly important. He also mentions a Facebook survey that shows 92% of millennials do not trust their bank or the centralized systems.
Millennials are the largest cohort but how important they are to the financial system is a question that Tom answered during his presentation. He explained how each generation experienced technological and social change.
Social media, ride sharing, crowdfunding, video on-demand, electric cars, blockchain and bitcoin are the millennial stories. Tom said that if millennials adopt this the way he thinks, this is not the internet bubble; this is a lot more like emerging markets becoming an asset class.
He further explained that the average millennial is 26 years of age today which means they’re already starting to drink and they started to buy cars and we’ve known that they’ve already transformed the alcohol market. There’s a preference for whiskey over beer and they’re already transforming the automotive market.
Millennials are just entering into prime income years and the key question from an investment perspective is how they will impact the investment markets in the coming years. To understand the investment preferences of millennials, previous generation cohorts investment preferences should also be analyzed.
The silent generation bought gold. Gold was $40 when we went off the gold standard in 1971. That was the first time individuals could buy gold and when the silent generation cohort peaked, gold was $600. A 15x in a decade just by single generation buying gold.
The millennials like growth stocks but 1982 to 1999 was the time when boomers were in their prime income years and they invested in stocks.
Gen X invested in hedge funds. 1999 to 2007 boom of hedge funds was attributed to the prime income years of Gen X.
Tom said that bitcoin’s rise in 2016 coincides with the first millennials entering their prime savings years. Today, for every billion dollars that goes into crypto, it’s turning into roughly $25 billion of price appreciation. If millennials put 10% of their savings flow, a $100 billion, into crypto that’s a two and a half trillion dollar rise per year. Crypto is roughly a $500 trillion market cap, so we think that you may end up seeing bitcoin by the end of the cycle as high as $10 million dollars per bitcoin.
Digital Store of Value
Most of the people consider gold as a store of value. Tom said that gold is one store of value and there are others like collectible arts, real estate, government bonds etc. It is a $280 trillion market that is used today to park money. Bitcoin is $200 billion dollars market cap and if bitcoin ends up just being 1% of the store value in the future, it’s a $150,000 per bitcoin.
He further explained that large financial institutions are taking interest in bitcoin and cryptocurrencies because there is a lot of money to be made.