Tom Lee gives the long-term bullish case for bitcoin and why it's better than gold

Published Thu, Feb 4 202112:07 PM EST

FundStrat's Tom Lee, who called the comeback in crypto in recent years and the stock market rebound in 2020, spoke to CNBC PRO about why bitcoin's supply crisis makes it a good long-term bet. While crypto experts agree that we have more than 100 years until we run out of bitcoin, the fact that there is an expiration date is a big part of what gives the world's biggest cryptocurrency its value. There will only ever be 21 million bitcoins in existence, because, like other cryptocurrencies, it was built around the principle of a finite supply. The total number of mined bitcoin is at roughly 18.6 million , so it's nearing its maximum threshold. (Watch the video below for exclusive insight from Tom Lee.) Amid economic and geopolitical tumult, more investors are looking to bitcoin, instead of gold, as a safe haven play, given this scarcity of supply. "Bitcoin was a safe haven four years ago, but now, all of a sudden, a lot more people have realized it's a safe haven," said Lee. Safer than gold? Bitcoin behaves a lot like gold. Its value is highly volatile, there is a marketplace where it is bought and sold, and similar to other commodities, you can speculate on the future price of bitcoin through the derivatives market. But bitcoin's digital infrastructure offers certain advantages to gold. "It's actually quite difficult to transact in gold because with gold, you need to have it assayed," explained Lee. "And there are storage costs." Tom Fitzpatrick, global head of CitiFXTechnicals, says that bitcoin is the new gold, in part because, "it moves across borders easily and ownership is opaque." Another major differentiating factor between the two? Scarcity. "[Gold] isn't as rare as people think," continued Lee. "Almost all the gold that exists is actually extraterrestrial...There could be an asteroid that hits the earth and we'd find a lot more gold, so it is false scarcity." Strategists at JPMorgan say the price of gold will suffer as institutional investors continue to buy into bitcoin. Bitcoin's fixed supply is also increasingly attractive as a result of the devastating financial blow of the Covid pandemic. Widespread shutdowns have decimated government coffers, and many countries around the world are strapped for cash. "There is less trust in institutions now because of the pandemic, all the money printing and what the central banks have done with all the fiscal stimulus," said Lee. Bitcoin's scarcity is seen by some analysts as a possible hedge against global currencies vulnerable to devaluation during times of economic crisis. The halvening Part of why we aren't running out of bitcoin anytime soon comes down to the fact that bitcoin's production declines exponentially over time, thanks to something called "the halvening" or "the halving." In order to create new bitcoin, so-called miners on the bitcoin network use specialized computing rigs to solve complex math problems. That math problem is how bitcoin transactions are processed. Whoever solves that math problem first gets rewarded in bitcoin. But the size of that reward has been shrinking over time. Roughly every four years, the size of the prize is cut in half. The halving was built into bitcoin's code by its pseudonymous founder, Satoshi Nakamoto, as a way to stave off inflation of the cryptocurrency. "Bitcoin can't issue any more shares," said Lee. "It doesn't do stock splits or dividends, so the only way to increase the network value of bitcoin is for the unit price to go up." There have been three halvings of bitcoin, to date. The last one in May 2020 is what some experts believe set off the price rally that started at the end of 2020 and continued into 2021. After bitcoin runs out It is predicted that 2140 is the year that bitcoin will run out. So, what happens then? The rewards for crypto miners will stop, because there will no longer be any bitcoin to collect as a prize. There will, however, still be a need for a decentralized network of computing power to calculate all those bitcoin transactions. What we are likely to see is miners charging fees for processing those transactions. This supply cliff is likely to foment further mainstream adoption of the coin, according to some crypto experts. Well established, billionaire hedge fund managers Stanley Druckenmiller and Paul Tudor Jones now own bitcoin and big fintech players like Square and PayPal are also adding crypto products. Experts agree that what we are looking at is a potentially huge supply crisis, because there won't be enough new bitcoins mined everyday to fulfill the need by major companies. But as Lee points out, the price of bitcoin ultimately depends on the level of adoption, and as of now, the number of people who own crypto is still shockingly small. "In terms of real holders, it is still less than a million people out of seven billion," said Lee. "So it is still low in terms of penetration." Subscribe to CNBC Pro to read and watch Tom Lee's full interview about bitcoin's looming supply crisis.

FundStrat's Tom Lee, who called the comeback in crypto in recent years and the stock market rebound in 2020, spoke to CNBC PRO about why bitcoin's supply crisis makes it a good