Bitcoin has been on a wild run in 2017 going from less than $1,000 for a full Bitcoin to over $2,500 as of this writing. Prominent people have been coming out predicting that Bitcoin will rise to $10,000 in the near future and to as much as $500,000 in the not so distant future.
I told my brother who has a daughter less than a year old that he should buy $100 worth of Bitcoin and in approximately 22 years when she’s ready to graduate college, it would pay her tuition. Of course, he thinks I’m nuts and doesn’t believe it since a full college tuition estimated at $100,000 means Bitcoin would have to rise to over $2 million per coin.
Once Bitcoin is fully mined, there’s a maximum of just under 21,000,000 that would be available. At $2 million per bitcoin, the total value of Bitcoin would be $42 trillion which may seem ludicrous today.
In 22 years which would be the year 2039 and for arguments sake, let’s call it by year 2040, you could get to such a valuation. Here’s how:
In 2016, the total world money supply was about $81 trillion. That’s defined only as currencies such as bank notes, coins and money on bank deposit. By 2040 that will have ballooned to more than $160 trillion at an annual inflation rate of 3%. Bitcoin would have to consist of about 25% of this money supply to justify a valuation of $2 million per bitcoin.
Does this seem likely?
What people don’t understand is that in addition to that amount, there’s a quadrillion dollars in above-ground gold supply, and funds invested in various financial products like derivatives. By 2040 that number will double. Bitcoin would need to be worth about 2% of this other money, which is a number that seems more likely.
Now the question is, how does Bitcoin get to a multi-trillion dollar valuation?
1) There won’t actually be 21 million bitcoins in circulation
Some bitcoins have been deemed lost, or more technically, permanently inaccessible. This happens when people have hard drives crash or forget the passwords to their Bitcoin wallets which contain the private keys necessary to access those bitcoins.
It’s possible up to 1/3 of all bitcoins mined will be lost over time which brings down the actual circulation to around 14 million. At $2 million per coin, the valuation of all usable bit *only* $28 trillion. This is now .014% of “other money” which is still a large amount.
2) Precious metals replacement
Gold, at only $1,200/ounce is actually a terrible store of large values. This is because it must exist in physical form and requires significant real world storage and security to hold and move it. $1 billion in gold is about 52,000 pounds of the actual metal. That’s very difficult to secure, store and transport when needing to move funds. Bitcoin, on the other hand, is stored digitally and can be moved quickly. Yes, this does pose other security risks from a cyber perspective, but much more manageable than moving thousands of pounds of gold.
Currently there are over $7 trillion in gold that’s been mined in the world. There’s more when you include all the other precious metals. In 23 years, the value will more than double from inflation and even more from newly mined minerals.
If Bitcoin were to replace some of that gold and other precious metals as a store of value you could see a significant growing interest and subsequent increase in price.
3) Derivatives, insurance and other financial products
Once Bitcoin reaches a value of $10,000+ you’ll start to see financial products based upon Bitcoin come into existence.
Big insurance companies, Wall St. firms and others who make markets are a significant factor in the value of “other money.” It’s these same firms who will begin to purchase Bitcoin for the purpose of hedging and insuring against losses on such Bitcoin based financial products.
When this happens, billions of dollars will begin to pour into Bitcoin and the price will quickly grow to $10,000.
4) At bitcoin $10,000, an avalanche of money pours in
As Bitcoin becomes mainstream to financial services companies, an acceleration of capital pouring into it will occur. Companies with large amounts of capital will not want to be left without Bitcoin based offerings. Because of fear of missing out and most likely regulatory requirements to hold Bitcoin to offset their financial products based upon it, the price from $10,000 to $100,000 will happen quicker than Bitcoin $0 to $10,000.
5) Slow, steady growth to $1 million+
In about 10 years when Bitcoin hits 6 figures, it’s only a matter of time before it continues to grow in valuation. After 13 more years, a $1+ million valuation of Bitcoin is possible.
In 23 years when many companies will have trillion dollar valuations. A globally accepted and easily transferable asset not controlled by any one organization, government or person, doesn’t seem that unlikely to be worth many trillions of dollars.
If you could have owned a piece of the Internet, circa 1998, imagine what your stake would be worth today. Bitcoin is the value transfer system of the future and individual bitcoins will be worth millions! You can actually buy a piece it of.
See you in 2040!