Because of all the bullish enthusiasm around it Bitcoin (Crypto: Bitcoin) And the new spot Bitcoin ETFs, it’s no surprise that we’re starting to see some very strong price estimates for Bitcoin. The thing getting all the attention, of course, is the new $1.5 million forecast from Cathie Wood and Arc Invest.
While $1.5 million may seem like an impossibly high number for a single cryptocurrency token, you’d be surprised at how easy it is to find estimates of the price of $1 million for Bitcoin. In fact, you can find forecasts of $10 million, $100 million, and even $1 billion for Bitcoin. So, how realistic are any of these price estimates?
Past results are no guarantee of future performance
The most common approach to arriving at a $1 million price target, quite simply, is to look at how Bitcoin has behaved in the past and then extrapolate how it might behave in the future. Once you examine Bitcoin’s price history, you’ll quickly see how easy it is. For example, it took approximately six months to 10x the value from $1 to $10, another six months to 10x from $10 to $100, and another six months to 10x from $100 to $1,000.
So, you can see where I’m going with this. If you rely entirely on past performance, you may fall into the trap of assuming that Bitcoin’s price can routinely increase by 10 times every six months or so. At the current price of $50,000, that would get you to a price of $500,000 by mid-2024. If you assume that Bitcoin’s price can double over the next six months, then there he is! It reached $1 million worth of Bitcoin by the end of the year. Congratulations!
There are different types of this approach, of course. One of them involves looking at the halving, a blockchain-specific event that occurs only once every four years. As a result of this halving, the value of Bitcoin tends to rise significantly. If you examine the history of three previous halving events and assume that Bitcoin will perform similarly after the next halving event (scheduled for April), you can come up with some startling assumptions for Bitcoin’s price.
Market size comparisons
Another way to determine a $1 million price for Bitcoin involves market size comparisons. By comparing the value of Bitcoin with the value of another well-known financial asset, you can come up with some impressive numbers.
For example, since Bitcoin is often referred to as “digital gold,” it might make sense to compare Bitcoin’s market value (currently around $1 trillion) to the value of all physical gold in the world (which is around $13.7 trillion). . If you believe the argument that “digital gold” will eventually displace “physical gold” as a store of value, then I have found a very clever way to show that the value of Bitcoin could increase by a factor of up to 10x. to 15x. This causes the price of Bitcoin to reach $500,000 very quickly.
But do the numbers make sense?
My concern is that at some point, the numbers don’t make sense. For example, given a current supply of $20 million for Bitcoin, a target price of $1 million assumes a market cap of $20 trillion for Bitcoin.
But think about that number for a moment. $20 trillion is nearly 7 times the market capitalization of the most valuable publicly traded company in the world (Microsoft or apple, Make a selection). It is approximately equal to the annual GDP of the United States. That’s roughly half the combined value of the Standard & Poor’s 500, which is now estimated at about $40 trillion.
In short, a $20 trillion Bitcoin valuation would only be possible if the entire US economy were to suffer a massive shock of some kind. Unfortunately, this would probably mean a market collapse of some sort. In such a scenario, money should flow from dollar-denominated financial assets into Bitcoin very quickly.
Cathie Wood’s price forecast is $1.5 million
With all credit to Cathie Wood, I think she has the best $1M Bitcoin valuation model. This is based on looking at Bitcoin use cases, extrapolating future growth prospects, and then aggregating the values of these different use cases. The math behind the model is completely transparent and publicly available, so you can check the numbers yourself.
However, I have a hard time seeing Bitcoin reaching $1 million anytime soon. Sure, Bitcoin could trade for around $1 million sometime in the next decade. But be careful about listening to anyone who tells you that the price of Bitcoin will rise to $1 million in 2024, simply because Wall Street now has Bitcoin ETFs to sell to you.
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Dominic Basulto has positions in Bitcoin. The Motley Fool has positions in and recommends Bitcoin. The Motley Fool has a disclosure policy.
Here comes the $1 million price targets for Bitcoin. Should we believe any of them? Originally published by The Motley Fool