Summary Recent debates at Davos once again highlight how Bitcoin isn’t meant to replace traditional banking. I think that’s a good thing; the two systems can coexist peacefully. BTC's deflationary nature makes it unsuitable as a global currency but ideal for long-term wealth preservation and institutional adoption. I'm upgrading to a Strong Buy rating on BTC due to its asymmetric upside potential, with a valuation model targeting $162,500–$275,000 and up to $1,000,000 per coin in a bullish scenario. Key risks include failure to achieve reserve asset status, persistent volatility, and ongoing high correlation with equities. With the World Economic Forum having just taken place in Davos, Bitcoin ( BTC-USD ) has been discussed between central bankers, institutional investors, and the like. In one interview , the CEO of Coinbase Global, Inc. ( COIN ) was very confrontational towards members of the TradFi (Traditional Finance) sector, mentioning that “banks are lending customers’ deposits without their permission.” In a different part of that same interview, the same Brian Armstrong called out a French Central Banker on a mistake relative to Bitcoin. The Banker incorrectly assumed that Bitcoins can be controlled by any participant in its network and brought that as an example of why independent central banking cannot be substituted. As an observer of the Crypto world, I am surprised by such conversations. I think they reveal how exponents from both “sides”—TradFi and DeFi (Decentralized Finance)—do not fully grasp the other side’s arguments and functioning. Today, I want to spend a few words to clarify what, in my view, is the role of Bitcoin in TradFi and why the two sides do not need to be at odds with each other, but rather realise they will need to coexist. Why Bitcoin is not an alternative to the global banking system How Banking Works (Project Instill) Anyone who has ever taken an Economics 101 course will be familiar with how banking works. In a nutshell, clients’ deposits are lent out at an interest rate to borrowers. The borrowing is done to a higher degree than the amounts available in deposits in the bank, meaning banks lend out more than they hold in deposits. This is the reason why fractional reserves exist in most legislation (with the notable exception of the US, where there has been no legally mandated minimum reserve ratio since 2020). I am surprised how sometimes this very basic function of our economy is brought up as an example of quasi-conspiracy. Yet, this is literally one of the core functions of our economic system. Businesses and governments effectively function because they can access financing to invest and hire. What is Bitcoin’s role in all this? None, in my opinion A banking system based on Bitcoin would not work. Because Bitcoin’s supply is limited to 21 million, banks holding Bitcoin could not lend out more than what they have available. Bitcoin, as a decentralized, algorithm-based form of money, could not be multiplied. It is deflationary in nature. Bitcoin, in this regard, was never conceived as an alternative to banking. Rather, it was conceived as a decentralized system of payment and then matured as an alternative reserve. This is a concept I discussed in my previous work on Bitcoin, bringing on-chain data that shows how Bitcoin behaves more like a reserve asset than a currency, with a somewhat limited number of transactions and mostly “holders.” The role of a global reserve asset Imagine a world where your everyday currency buys you twice the amount of goods than what it bought five years earlier. Would you spend it to buy, for example, a car that depreciates the moment you step out of the car dealer? What about spending it to buy groceries? If you had the reasonable expectation that everything you purchased were to become cheaper in the future, it would be logical to delay most of your purchases (in other words, save as much as possible). What I am describing with this example is the reason why deflation is worse than inflation. China is currently struggling with deflation . Not as a result of the yuan getting stronger, but due to an overcapacity of production that cannot be fully absorbed by internal demand and exports. In simple words, goods get cheaper over time. The results are that more than 25% of the listed Chinese companies reported a loss in the first half of 2025, and youth unemployment is stubbornly stuck above 15% . And this is official data, which is famously unreliable . In academic terms, the chart below showcases the effect of deflation on an economy. When people and businesses spend less (AD shifts left from AD₁ to AD₂), prices drop (from P₁ to P₂), and output falls below full employment (to Y₁). Over time, lower wages and costs shift SRAS (Short-Run Aggregate Supply) right, causing even lower prices (to P₃), while output slowly returns toward the unchanged full-employment level (Y-FE). The Curious Economist Back to Bitcoin. Bitcoin is a deflationary currency in nature. With a limited cap, it would be a horrible choice as a global currency. It would cause chronic, undefeatable deflation of the world's economy. A global reserve asset serves another purpose. Like gold, which has been on the run lately, it serves as a reliable, neutral store of value and hedge for nations' central banks in an uncertain world. Central banks hold it for safety, liquidity in extreme scenarios, and long-term wealth preservation. Due to the deflationary nature of Bitcoin, I see it as a potential (with emphasis on potential) global reserve asset, rather than a global currency used for commercial transactions. Conclusion: My Bitcoin price target and why I remain bullish I covered Bitcoin extensively on Seeking Alpha, with 10 articles on BTC-USD and more on the iShares Bitcoin Trust ETF ( IBIT ) as well as other Bitcoin ETFs. As I usually do at the end of most of my Bitcoin-related pieces, I will summarize my thoughts on why I am bullish. However, I invite readers to consult my previous work if they have any specific questions or thoughts on my investment thesis (which I cannot cover in detail every time). I am happy to address them in the comments, too. Bitcoin has all the technical characteristics it needs to succeed as a global reserve asset: durability, divisibility, fungibility, portability, verifiability, and, most importantly in my view, scarcity. In an ever-polarized world, I think there is enough room for more than one major global reserve asset (gold). My belief is compounded by the fact that gold is an element that can be found on Earth at 4 parts per billion, and it is therefore subject to technological disruption. New mining techniques or asteroid mining could theoretically render it obsolete. While today these technologies seem far away, humanity tends to evolve exponentially . I think that increasing institutionalization of Bitcoin, especially by the current US admin, has rendered Bitcoin easily available for most, making its adoption at this point in time purely a matter of strategic choice, beyond any technical hurdles. In the above context, I keep seeing Bitcoin as an asymmetric bet on it maturing as a global reserve asset. Should that happen, my valuation model (summarized in the table below) sees Bitcoin worth between $162,500 and $275,000 per coin, with an upside of up to $1,000,000 per coin in a bullish case. BTC Valuation Model (Author's Work) With Bitcoin trading at ~$88,000 per coin at the time of writing, I'm upgrading to a Strong Buy rating on the asymmetric nature of the investment. Concrete risks exist, which I will cover next. Risks The main risk in investing in Bitcoin today is that it may never mature as a global reserve asset. Just because Bitcoin has all the technical characteristics needed to become one, it doesn’t mean it will actually be adopted by institutions to such an extent. With gold rallying in the current geopolitical context, Bitcoin is still stuck at the level of late 2024. Measured in gold , Bitcoin is actually in a bear market, and its price is below 2021 lows. In other terms, it is clear to me that Bitcoin is not yet being adopted as a global asset. In this sense, any investment in BTC remains a high-risk bet. My own bear case sees Bitcoin remaining “an online casino,” with value only extracted from its volatility by active traders. If that’s the future of Bitcoin, the cryptocurrency will never mature to the size of a global reserve asset and may forever trade at levels around its current price. Other risks include high volatility and the fact that Bitcoin continues to be highly correlated with equities. Anyone willing to take an asymmetric bet on Bitcoin should be aware of these risks.
