Cryptocurrencies like bitcoin and Ethereum are melting demand for gold. Reuters/Shamil Zhumatov Investors have cash to burn right now, and based on the astronomical performance of cryptocurrencies like bitcoin and Ethereum, that's where a lot of it is getting funneled.

This is coming at the expense of gold, says Tom Lee, the managing partner and head of research at Fundstrat Global Advisors. In fact, he thinks that the growing preference for the cryptocurrencies over gold is actually helping contribute to the torrid gains in the fledgling products.

Bitcoin is up a whopping 172% percent this year, closing at $2,607.02 per coin on Thursday. Ethereum has skyrocketed 3,200% over the same period, sitting at $266.01.

One main factor driving demand for cryptocurrencies is the reduction in supply that's been seen in recent months, according to Lee. He notes that the rate of bitcoin units added has been more than halved over the past year, to 4.4% from 9.3%. With mining slowing down, bitcoin won't reach its theoretical maximum number of units until 2045 or later.

Meanwhile, Lee finds that gold production has risen "sharply" since 2009, and now sits at 3,100 metric tons, the highest on record.

"Cryptocurrencies are cannibalizing demand for gold," he wrote in a client note on Friday. "Bitcoin is arguably becoming a scarcer store of value. Investors need to identify strategies to leverage this potential rise in cryptocurrencies."

So with all of that considered, how high can bitcoin go?

Fundstrat's base case calls for the cryptocurrency to expand eight-fold to roughly $20,000 per unit by 2022. But in the most bullish scenario, bitcoin could reach as high as $55,000 over the same period.

"Our model shows gold’s value being relatively static against a rise in bitcoin," Lee says.

One potential wild card that may speed up investor allocation into cryptocurrencies could be buying by central banks. Bitcoin currently has an aggregate value of $42 billion right now, and if that climbs above $500 billion, it's a very real possibility, according to Lee.

"Already central banks have looked into this possibility," Lee says. "In our view, this is a game changer, enhancing the legitimacy of the currency and likely accelerating the substitution for gold."