Bitcoin is becoming 'digital gold' and there is a case to be made for the recent price surge to continue to $100,000 by 2021, says Hong Fang, CEO of OKCoin, one of the largest crypto exchanges in the world. Fang argues that should bitcoin catch up to even 25% of gold's global market capitalization of $9 trillion, that figure would amount to a price range for BTC of $80,000 to $100,000.
Bitcoin prices have been surging close to $18,000 today on Thursday. Our next expert thinks that this is not the end. In fact, she predicts a hundred thousand dollars by next year and perhaps higher beyond. Okay. Coin CEO, Hong Fang joins us today. Hong it's the first time it's Hawking. Welcome to Kitco.
Thank you for having me. Let's set up your thesis here. Why do you think Bitcoin's going to go a lot higher? We saw similar movements in 2017 back then experts were predicting higher prices as well, but as soon as it touch almost a $20,000 Mark, didn't really sustain that level for very long. So what's different this time.
Yeah. I think basically when we think about the climb, we have to ask ourselves what it is. Um, the fundamental value proposition for Bitcoin is that it is a great store of value. It is very scarce. There's only 21 million Bitcoin available. That is pre-programmed into the code. It is very durable.
Obviously it is digital. It is in the air. It is accessible. It's online 24 seven trading accessible, uh, anywhere. Um, you are in the world. And it is divisible and, um, it can be broken into a hundred million that Toshi and it's, uh, it's very divisible. Um, also it is verifiable and censorship resistance. So I think there's a lot of similarity between Bitcoin, the characteristic, Bitcoin and gold, which has been a long-term, um, store of value for it.
For people around the world. The only difference is that, um, Bitcoin is the first native, uh, internet money that we have seen in human history. And it is. It doesn't have a physical presence. Um, that's also why I think it takes a long time for people to actually appreciate the value and the uniqueness of it.
Um, I think the difference between today versus 2017, there there's a lot of stuff going on. Obviously I think back in 2017, the, uh, the price hat was, uh, pretty much due to, uh, ICO run, which brought in a lot of speculative trading, um, uh, demand, uh, around the world, particularly in Asia. Um, and, um, the, uh, when, when you think about supply and demand for, uh, uh, an asset like Bitcoin, it doesn't generate cashflow itself.
Therefore it is a very much supply and demand play. But back in, in 2017 that the supply is fixed, right? The maximum supply is fixed. 21 million at ad. Most obviously there, the circulating amount is actually smaller than that because you're a certain amount that hasn't been mined yet. And also they're a portion, a huge portion, 10%, actually, that has been dormant since, since they are, they, they were mined.
Uh, but on the demand side, Um, back in 17, um, a lot of that demand is very fickle. Uh, uh, majority of that demand is very fickle. Uh, it's very speculative trading driven now. Um, fast forward in 2020, I think there's a lot of stuff happening that are changing the dynamics there. Um, 2020 is a very extraordinary year.
I think the pandemic is bringing a lot of uncertainty, uh, to the world, uh, in response to that, uh, uh, the governments and central banks around the world are printing money and, and large magnitude. And that brought people to realize again how easy it is, uh, for, for us to see free money flowing into the system.
Uh, just screaming out of nowhere. Um, just like what we've been, uh, w what we saw actually back in 2008, um, and big one was actually, uh, created on the heels of a 2008 financial crisis. Exactly. Because of that. Okay. Okay. Now let's talk about the path to a hundred thousand Bitcoin. You've outlined a few scenarios in a recent op-ed that you've written.
One of the scenarios that I like to comment on first is the matching of the market cap to gold. You wrote that gold currently has a market cap of. $9 trillion, which is about 2% of global wealth. And you think that Bitcoin will eventually, as people recognize it as a superior version of gold catch up in market capitalization, can you walk us through your assumptions?
Yeah. Yeah, absolutely. I think it's back to my previous assumption that we are in a different phase today versus 2017. I think in 2017, uh, Bitcoin is really at a collectible phase where a lot of the speculative trading is driving the demand. So it's really hard to come up with a solid supply and demand model for estimating the value.
I think today we're at a very early stage of seeing the coin as the store of value. And that's also where we see a lot of the demand coming in. That's actually long-term holders. Uh, institutions companies, uh, and even individuals who have a stronger belief in Bitcoin's value proposition as long-term store of value.
So in that case, I think I'm assuming I'm making very, um, conservative assumption to some point, uh, accounting for the, the timing uncertainty, right. That we have no. Crystal ball into the future. So we don't know whether this will happen in the next 12 months or 24 months or six months, but looking at what we have today, seeing all the institutional endorsement coming, uh, building up and fidelity, coming out with the court, um, uh, officially saying, you know, we recommend having 5% allocation of your wealth into Bitcoin because it's, it has all the good things.
And it's also unrelated. Uh, there is a lot less, uh, not a lot of correlation with it. Yeah, historical asset, traditional asset. So if we take just 2% of the global, uh, high net worth individual, not even the whole, um, family wealth, so globally, and do that math, it can easily get us to a well, you were talking about that 100,000 price.
Yeah. So, and potentially, uh, beyond if you, if you assume that a matches fully the Gold's market capitalization, but that's. Longer term in the future. Yeah. Yesterday, the, um, the, one of the richest man in Mexico, right. He, you know, like saying that he actually allocate 10% of his wealth into Bitcoin one, you know, I just wonder how many people out there actually do that allocation.
Uh, well over 5%, I think, um, I think that, uh, this year it was very interesting because the first time in a long time we saw gold and Bitcoin have a close correlation with each other. And I wonder if it's because some of the same macro drivers are behind both or is this a complete coincidence? Um, I'm of the view that it is being driven by the same macro themes, which is people are seeing the money, PG printing, um, uh, happening around the world.
And people, uh, also realize that this pandemic has been lasting longer than expected. Right. And different from what we had in 2008, which is, uh, pretty much all happening within financial world today, we actually see impact in the real economy. And that may take a while for the, uh, for the economy to recover combining those two.
Um, and, and also previously we see fed, we reacting to that, right. Basically they came out and say, okay, You know, you know what, historically, we have a 2% to 3% inflation target that we hit. Uh, but we are seeing what what's happening and we may not stick to it. We may go well beyond that inflation, uh, benchmark.
So I think seeing that a lot of the investors, um, hedge fund macro macro fund guys, um, you know, uh, we'll see people or even just individual people like you and me. Got to think about what are the risks long-term from an inflation risk perspective now in the us, I think what you asked, being able to enjoy over the last, uh, decades.
Uh, one more than two decades are that a technology in itself is a, is a natural deflation mechanism and it continues to be that however, When the real economy is under pressure. And when you see the money printing going on, I think that inflation risks long-term is real high. Something that you have to account for.
Let's talk about that comparison for a bit. You brought up the comparison of Bitcoin and gold. Now I've heard arguments on both sides of this debate. Uh, the counter argument would be that look, people buy gold, like you said, as a store of value. Um, and you've made that comparison to Bitcoin, right? The argument here is that gold has had a history of 5,000 years as a form of money.
Bitcoin has not had that history. It's not had that track record. Gold is a physical asset, which a lot of people still trust more than something digital. And of course, gold does not have the price volatility that some argue is inherent in a characteristic of a safe Haven store value. All of those things Bitcoin does not have.
Can you comment on that? Of course happy to do that. Um, you actually mentioned a word, which I think is essential. Uh, the word is trust. I think, uh, whether it's gold or Fiat money or Bitcoin as a potential future sort of value where even, you know, global reserve currency trust is essential, uh, because you know, for a anything to be that, that, um, uh, reserve currency, you have to have, people have to have widespread trust in.
In that, um, asset to be able to hold value, uh, either over time or across different, um, jurisdictions or at larger scale. Right. So that I think is essential and building trust take time. And I think that's also why it takes, um, you know, right now, Bitcoin. Uh, the first Bitcoin was mined into early 2019. The white paper was published in, uh, by end of 2018.
So right now we're looking at 11, 12 years of Bitcoin compared to thousands of years, uh, for gold, uh, to actually, you know, evolve and actually, um, uh, gather that adoption globally. So Bitcoin is extremely young in, in that sense compared to gold. That's exactly. Now there's nothing to debate about that. Uh, but I, I think there, there we are.
Uh, heading in that direction. We're talking about first principle, right? We need to look at what God has to offer to us as individuals, as consumers versus what Bitcoin has to offer. There's a lot of superior quality in Bitcoin versus gold. The one, uh, again, two things, are it, Bitcoin is more easily verifiable.
It is also more censorship resistant than, than gold. And it's more divisible. And if you look for resistant, what does that mean? Meaning meaning it's, um, it is, uh, encrypted, right? So basically, um, owner of big one, hold the private key. As long as you hold the private key, you remember the private key in your own mind.
Nobody can access have access to it. People can still have access to the physical gold if they find it and take it away. A big point of this. Remember that private key in your, your head. Nobody can take it away right now. What we saw, what we're seeing this week, I can't help, but reminisce about 2017, which is that Bitcoin has been rising and gold has been stalling.
If not falling down speculation from both the Bitcoin and gold communities, is that the same money that used to be going into gold is now going into Bitcoin. I don't know if you have any comments about that. Um, are you asking me whether people are choosing between gold and Bitcoins? I'm asking you, you think Bitcoin is stealing gold thunder in more simpler question terms?
I think it's a question of asset allocation, right? For any national investors, when people allocate their money between gold and Bitcoin, they have to ask about the risk reward profile. Um, how, uh, how well does this asset help me? Protect my downside risk. And then what is the upside risk? I think from the downside risk perspective, uh, Bitcoin and gold are pretty, uh, in line with each other.
Um, although personally, I would say that Bitcoin is probably superior in some aspects, particularly given its fixed supply. However, from the upside, uh, perspective, I think Bitcoin has a lot to RN just given where it. Currently is, uh, from a market cap perspective versus where goddess, I think there's a lot room for Bitcoin to grill.
So when, when investors are looking at that math and they got to think about how much allocation they want to adjust to put in Bitcoin versus gold. Someone asked me this earlier. If I had a hundred thousand dollars, how would I allocate my assets? How much of your $100,000 would you put in Bitcoin? Uh, I cannot comment your allocation because I think, uh, everyone be your own decision for me, a hundred thousand.
I'll probably put 20. Was that an infant court? Okay. I'm not all in yet because I still have my, uh, liquidity needs every day, but sure. Well, you don't think Bitcoin could cover your liquidity needs. Uh, not now, I don't think, uh, yet yes, to some extent, uh, the payment utility hasn't come up yet, but there is a very liquid market trading market for Bitcoin and USD.
Um, um, but that, um, yes, I would also have other, um, asset allocations, like, uh, you know, Boucher, uh, equity and real estate, uh, and some of the other stuff, but Bitcoin is definitely a very. Top of my list. Okay. What about the argument that Bitcoin has been used for illicit activity and that governments will eventually crack down and potentially back cryptocurrencies because of this?
Yeah. There are two sides to that, um, uh, statement, right? Um, uh, about Bitcoin being used, uh, in illicit or illegal activities. That is true, but that is also true with gold with, with, uh, with, uh, us, us dollar, and even with some. Uh, popular commodity. So I, you know, things that people actually use just to, to, to, uh, hide what they're doing illegally.
So I don't think that would be a counter argument to whether it be pointed itself is, is a good thing. We're not longer term. Now, when, when you talk about regulatory ban, uh, or government ban, um, yes, uh, we've we've seen the government ban, uh, of Bitcoin in different pockets of the world. Um, some country ban.
Big one, um, you know, no matter what you're doing it, either using it or holding it as illegal, uh, some countries have partial ban on it so that you can hold it as a assets it's legal assets. However, you cannot use it, uh, to pay where you cannot trade it legally. Uh, but however, you know, when, when people talk about regulatory, uh, ban, I don't think that is a, uh, a real risk to Bitcoin at this point.
It can, it could have been a risk if there are two big assumptions. One, if there was only one single gov, uh, global government and, and two that one single global government we're actually. Um, have the vision enough to take actions very early on, for example, in the first two or three years, where even five, seven years of Bitcoin at work development and close it, even before it gathered enough, uh, um, uh, adoption.
But I think we are well past that point. Now we have, uh, public companies putting their money, treasury money into Bitcoin. We have a statesman. I like Cynthia, um, who is the, the, the latest. He likes to sit the aluminum Senator elect of Wyoming. Yes, Wyoming. Um, she is talking about Bitcoin as a very solid, um, as do I value.
So I think it's going to be really hard to go back to Ben and totally, and also it is a very global network. Um, as long as there are areas where Bitcoin is allowed, I think people will make their choice. Um, those areas where the government is spending an outright, I think ultimately they will seek capital outflow and that will change, um, the mind of the government.
For example, with India. Then Bitcoin at some point. Um, and then they, they started to realize that it was not sustainable and they opened it again. So there are cases where we see, um, you know, people, the government tried it, but it didn't feel like that leads me to my next question, which is that the new administration is putting together a new financial policy transition team with a lot of experts that have ties to the crypto community.
Notably Gary Gensler, for example, who has been an outspoken proponent. Of cryptocurrencies and has written about the subject. Why do you think the government wants to be closer with crypto experts? Look, um, it's not, I'm not in the position to comment on what the government or the next administration may want to do.
Um, but from an industry perspective, I think we definitely welcome more conversation, uh, with the government, with the regulator, because I think it's essential for us to have a, um, uh, Uh, embracing and forward-looking regulatory framework, um, for Bitcoin and any other new tech technological innovation to thrive.
It is very new. It is. It's something that we've never seen before in human society. So there gotta be a lot of ambiguities and gray areas that we have to explore soon. And, um, we need government, uh, support, um, and, and creating the right constructive environment for us to do that proactively. Um, and at the same time, keep the bad actors on, on the, on the hauling.
Let's talk about, okay. Coin now, and maybe a little bit about your background, how you transitioned, you were a. MBA grad from the Chicago booth school, you went to Goldman Sachs to work in the corporate finance division for a while before you transitioned to the crypto community. I'm just wondering why you came from a pretty conservative, traditional finance background.
You decided to work in crypto now. Uh, what, what made you do that? Switch? Well, I think the underlying theme is consistent when I went to Chicago business school to study math. I, um, I, I wonder because I believe in the free market, um, and I think the free market is the power of force, um, uh, for either economy or individuals.
Uh, like you and me would live in it. Uh, and when I go to, uh, uh, Goldman investment banking, you know, financial is the center of the free markets. I want to be part of it. Um, after spending eight years in investment banking, I started to growth equity investment, and that's when I, I, uh, came across. Okay.
Coin, right. Uh, which was back then the largest, uh, um, RNB to a crypto exchange platform in China. So I actually ended up investing in downtown. I let their CSP investment, um, and I've been sitting on the board ever since. Um, and, uh, you know, um, when upon making that investment decision, I realized that Bitcoin actually represent that free market spirit.
It free market in money. Uh, it is the ultimate free market that we can see. So I, I have a lot of conviction in what it can become and what kind of value you can bring to us. Long-term um, and, uh, in 2009, I started, I decided to switch from the investor role and put on the operational hat and joined, uh, okay.
Coin, uh, on the operational side. Uh, it said it's just too fun. A ride a little bit about, okay. Coin. How does it work? Okay. Coin is, um, we are a regulated, um, uh, Fiat to crypto exchange. We'd register. We're headquartered in San Francisco. We registered with, uh, uh, in us with different States with Vincent. Uh, we offer a free out to crypto trading in us.
Dollar parent Euro pair in Singapore event here. Um, so if you want to, uh, buy a Bitcoin, for example, uh, with your us dollar, will you come to us? This is the, this is the place. Um, we have been here for three years. Um, so, um, you know, uh, w we are working very hard, uh, over the last 12 years to build out platform as well and, and product a lot of good product feature has coming up.
Um, feel free to check us out. Thank you very much. Pleasure speaking with you today. Same here. Thank you for having me. Thank you for watching Kitco news. I'm David Lynn.