2 New Possibilities That Could Send Bitcoin to $200,000 and Beyond

Bitcoin (BTC -0.73%) is currently priced around $83,500, but under the right conditions, it could fly to $200,000 or more, if given enough time.

There are a pair of new possibilities in particular that could be responsible for driving a large part of that move. Both of them have to do with the economy and government of China, the world's second-largest economy in terms of its gross domestic product (GDP).

Let's examine both of these trends to see how they could make the case for buying Bitcoin even stronger than it already is.

Economic stimulus could boost crypto buying activity

China's economy is driven by its vast domestic market as well as its industrial powerhouse of export-focused industries like electronics and electrical machinery. For its domestic market to function smoothly, consumers need to be making money and spending it on Chinese produced goods. If incomes are insufficient, or if people are hesitant to spend, the economy will not have enough demand for businesses to remain healthy.

It appears that the government of China is worried about that possibility enough to take action. Under a new policy package announced on March 16, building on previous proposals released over the last few months, the country will raise its minimum wage and significantly expand its social safety net, among other measures, in an attempt to raise the incomes of its citizens.

At the same time, China's central bank has stated that it may slash its main interest rate, enabling cheaper borrowing by businesses, and it may also inject liquidity directly into its financial system. Other measures intended to prop up the economy -- like issuing more of the country's debt, and running its budget at a higher deficit than before -- are also underway and may be expanded in time.

So there will be a comprehensive set of new stimuli for China's economy. The push may or may not succeed in driving more domestic demand, but given the whole-economy approach, it is more likely to succeed than to fail. But how does any of that relate to Bitcoin?

After all, mining and trading of cryptocurrencies, including Bitcoin, are officially banned in China. But as of late February, the highest judicial court in the country was discussing regulations pertaining to the legal status of cryptocurrencies and other digital assets.

If those discussions ultimately lead to Bitcoin legalization (and they might), it would be a new catalyst for the coin. But if that legalization occurred precisely when people's incomes were rising rapidly, and when they were being encouraged to both invest and consume, the positive impact on the coin's price might be even stronger, which is the upside possibility that's worth understanding here.

That's especially plausible, because earlier this year, the government directed its pensions and mutual funds to invest more in domestic stocks to support their price. In other words, if Bitcoin is legalized and the government understands that its newly wealthier citizens are buying an asset, it could tell its businesses to buy the coin, too, to make sure that its price is sufficiently supported. And that would send the coin even higher.

Following the new U.S. crypto policy would be huge

For the moment, the above sequence of events is somewhere between pipe dream and reality. But there's one other huge possibility that, if it happens, would make the first possibility far more likely, and also a more potent tailwind for the coin.

China may be considering or already working toward forming a national Bitcoin repository, much like how the U.S. recently claimed it was working toward forming a Strategic Bitcoin Reserve. That's far more realistic than it sounds. More than 21% of the global mining capacity for Bitcoin is based in China, illicitly.

Therefore, if the country were to form a Bitcoin repository of some kind, it would be doing so as a way to support one of its domestic industries that's already operating in full swing despite lacking legality. Under those conditions, it would not be surprising if companies were advised to retain some Bitcoin, because that would create a positive price impulse for the country's miners as well as (possibly) its newly invested citizens, as well as for the value of its assets in the repository.

And that would be a powerful set of interlinked drivers that could send Bitcoin's price over $200,000 or even higher.

So, what should you do in light of this information? Gradually accumulate and hold Bitcoin, and it will be hard to go wrong if these possibilities end up playing out. Keep in mind that there is no guarantee that the government of China will actually move forward with legalization or its Bitcoin reserve -- but at the same time, recognize that the asset is worth buying even if neither of those possibilities actually happen.