By Jen Wieczner, April 25, 2018. The annual Sohn Investment Conference in New York is usually a place where Wall Street’s top hedge fund managers and investors present their stock picks — from Amazon to Valeant Pharmaceuticals. For the first time in the event’s 23-year history, one of those investors used the Sohn conference stage on Monday to recommend a digital investment: Bitcoin. John Pfeffer, a partner at his London-based family office Pfeffer Capital, is not only betting on Bitcoin but assigns it a bold price target of $700,000 — about 75 times the current price of nearly $9,500. While Pfeffer did not put a time frame on his prediction, his target exceeds optimistic forecasts from other influential investors, such as venture capitalist Tim Draper, who earlier this month predicted Bitcoin would reach $250,000 by 2022. “Bitcoin is the first viable candidate to replace gold the world has ever seen,” Pfeffer, a former partner at private equity firm KKR, told the crowd at the Sohn Investment Conference at New York’s Lincoln Center. So if Bitcoin becomes the dominant non-sovereign store of value, it could replace gold or become a new reserve currency. Pfeffer’s math works like this: he assumes Bitcoin can replace all privately held gold bullion — the gold bars people keep in safe-deposit boxes or bury in their backyards to park money in something more dependable than paper. “Bitcoin is vastly easier to store and secure,” Pfeffer said. The current value of all privately held gold bullion is about $1.6 trillion, he said. Assuming there will be 18 million bitcoins in circulation by the time the cryptocurrency fully replaces gold (about 17 million have been produced so far, out of a maximum 21 million), the implied value per bitcoin would be $90,000. This is Pfeffer’s most conservative scenario, which he gives 8% odds of occurring. He is even more optimistic that Bitcoin could eventually serve as a reserve for central banks, displacing some traditional foreign reserves over time; total foreign reserves are currently worth $12.7 trillion, he added. While it's unlikely Bitcoin would fully replace all foreign reserve currency, Pfeffer modeled scenarios in which Bitcoin would account for a quarter of foreign reserves, implying a 20x return from current prices. If Bitcoin's total value rose to the equivalent of all foreign reserves—$12.7 trillion, including gold bullion and reserves combined—that would imply a Bitcoin price of $700,000. "As an investor, what interests us most at this point is that Bitcoin might become the dominant non-sovereign currency," Pfeffer said. Although he assigns only a 1% chance of Bitcoin reaching $700,000, that possibility alone is enough for him to make "a small, venture capital–style, buy-and-hold, long-term bet." In other words, his strategy is: "Buy the ticket, take the ride."

Pfeffer previously dabbled in other cryptocurrencies over the past two years but has since pared his crypto holdings back to Bitcoin. He realized many other cryptocurrencies do not function simply as money but as utility tokens—coins used to perform specific operations rather than as pure currency. Tokens tied to the Ethereum network, for example, are used to execute smart contracts. Using the economic theory of money known as the equation of exchange, Pfeffer argued that a cryptocurrency network's value equals its total economic activity divided by the velocity at which money changes hands. Because utility tokens are exchanged frequently, their value will be under constant pressure; "I think they're going to turn out to be value traps," he said. Bitcoin, by contrast, offers a way out: if people want to store wealth in a crypto asset, Bitcoin could serve that role, supporting his thesis that Bitcoin will replace gold.