Wall Street analyst Tom Lee believes that bitcoin’s enormous upside makes it an “important” asset for investors to own.
Lee, a managing partner at Fundstrat and a former chief equity strategist at Goldman Sachs, explained his reasoning earlier this week at Yahoo Finance’s All Markets Summit, stating that bitcoin represents a “huge revolution in terms of decentralized control”:
“It’s a huge revolution in terms of decentralized control,” Lee said. “It’s biomimicry, finally, in the technology industry. A proper structure for maintaining encryption and security. But because of the nature of blockchain it’s also an asset class.”
The market strategist, who has been described as one of Wall Street’s “biggest bears”, is quite bullish about both the short- and mid-term prospects of the bitcoin price.
Wall Street acknowledges Bitcoin’s rise
He believes that increasingly, younger investors will begin to use bitcoin as a store of value instead of precious metals, which served this purpose during the pre-digital era. Moreover, he notes that the bitcoin price is uncorrelated to equities and traditional market factors, making it an “important security” for investors to own.
“And I think this year has proven that Bitcoin is uncorrelated to equities, gold, interest rates, commodities. It’s an important security, I think, for investors to own.”
Using a model based on Metcalfe’s law — which states that the value of a network is proportional to the square number of that network’s user base — he has established “conservative” bitcoin price targets of $6,000 by mid-2018 and $25,000 by 2022.
“If you modeled something as simple as square the number of users plus transaction value, it’s explained 94% of [Bitcoin’s price appreciation] this year,” Lee said. “Using a 90% deceleration of both factors [in Metcalfe’s Law] next year gets you to $6,000 by mid-2018”.