The price of Bitcoin made a new record high above $4,300 today and is now up roughly 350% year to date or 643% over the past 12 months. If you add in the free Bitcoin Cash distributed to Bitcoin holders, the current value of Bitcoin is closer to $4,600. In this article, I will lay out the case for why a Bitcoin price of $1 million is not as outlandish as it appears at first blush.
While some people are saying it could hit this level by 2030, I think we could see the Bitcoin price reach $1 million much sooner.
Wences Casares, a member of PayPal’s board of directors and CEO of Bitcoin wallet Xapo, recently predicted that Bitcoin will hit $1 million within 10 years. Casares opined that:
“The internet doesn’t have a currency and it desperately needs one”, pointing to the world’s most popular cryptocurrency. Put 1% of your net worth in Bitcoin and forget about it for 10 years” Casares added, baiting new investors to adopt the cryptocurrency.
CNBC’s Jim Cramer think it could hit $1 million due to companies stockpiling it to pay off potential cyberthreats. While I highly doubt this will be a driving force, it could certainly be adding to demand. Cramer was responding to a recent comment by Business Insider CEO Henry Blodget, who said Bitcoin could go to $1 million.
“I think it could because the European banks are frantically trying to buy them so they can pay off ransomware. It’s a short-term way to be able to deal with cybersecurity. It is the way to pay off the bad guys,” Cramer said.
Blockchain CEO Peter Smith joined Snapchat investor Jeremy Liew in saying $500,000 would be the price per Bitcoin by 2030. At the time, Bitcoin was around $1,200. I suspect they have raised their forecasts following Bitcoin’s rapid rise to above $4,000.
“We believe Bitcoin awareness, high liquidity, ease of transport and continued market outperformance as geopolitical risks mount will make Bitcoin a strong contender for investment at a consumer and investor level,” the pair told Business Insider.
Smith and Liew calculated that the average Bitcoin user will end up holding $25,000 worth of the cryptocurrency by 2030. They also assume that the number of Bitcoin users will grow from 6.5 million to 400 million. Multiplying those two numbers (25,000 times 400 million) gives a Bitcoin market cap of $10 trillion. Dividing that by the fixed supply of Bitcoin in 2030, 20 million, yields the $500,000 Bitcoin price prediction.
But I suspect that the number of users will growth much faster than these estimations and the average holding will be well in excess of $25,000. If we estimate the number of users at closer to 600 million and the average holding at closer to $35,000, this would put the market cap at $21 trillion. When we divide $21 trillion by the Bitcoin supply of 20 million, we arrive at a price of just over $1 million per coin.
Why are my estimates more aggressive? Coinbase.com, the largest U.S. exchange, reported that it has been adding 1 million new users per month! They recently raised $100 million at a valuation of $1.6 billion. Furthermore, with Bitcoin (plus Bitcoin Cash credit) up over 720% in the past year, it does not take much of an initial investment for the average holding to exceed $25,000.
Yet, it is estimated that less than 2% of the population has invested in Bitcoin and less than 1% of overall investment money has flowed into Bitcoin. If the price can quadruple to over $4,000 in just seven months with 99% of investment funds on the sidelines, imagine what it could do when the wealthy and institutional money begins flowing in a faster pace.
On the other side are those that continue to cling to the notion that Bitcoin is a Ponzi scheme, fake Internet money or an evil ploy by the power elite to go cashless.
I have followed Peter Schiff for quite some time, respect most of his views on the markets and met him a few times at investment conferences where we were both presenting. Long before he started commenting on Bitcoin, I found him to be a little on the arrogant side, incredibly cocksure and condescending toward those with differing views.
I see the same occurring now with his comments on Bitcoin. I’m afraid he is stuck in his old ways, wearing blinders or perhaps views Bitcoin as a threat to his gold and foreign-equity focused investment firm Euro Pacific Capital. After all, the financial industry has much few opportunities to collect commissions with a new form of investment that people can make directly and store on a hard drive. With cryptocurrency-backed debit cards and other emerging tools, you can literally become your own bank and bypass the antiquated, exploitative and corrupt financial system.
Any at rate, he has been hostile towards Bitcoin and vocal in his views. He calls it “digital fiat” with no real world use.
Bitcoin is being created but there is no real value in bitcoin it’s all based on faith. If somebody doesn’t want your bitcoin there’s nothing you can do with it right? People who are buying it think that one day bitcoin is going to be a currency that everyone uses — It’s going to be worth a million dollars a bitcoin. It’s impossible. First of all there’s already a thousand other cryptocurrencies and how many more can there be?
But Peter is missing a few key points about Bitcoin that give it value. First off there is scarcity, with Bitcoin’s current supply at 16.5 million and slowing until it hits a cap at 21 million. Unlike fiat money or even equities, the Bitcoin protocol prevents the issuance of new supply.
Some question whether this could be changed in the future, but it is determined by the Bitcoin community and stakeholders, all of which would have no interest in increasing the supply and diluting their own positions.
Besides, with free market money, funds would flow to other cryptocurrencies with strictly limited supply and harm Bitcoin. So, the odds of the supply suddenly increasing in the future and breaking the current protocol are slim to none. It is mainly a scare tactic by Peter and other Bitcoin haters looking for chinks the armor of this new money that they feel threatened by.
Others claim that increased adoption would necessitate increased supply, but Bitcoin is divisible to 8 decimal places and it is just as easy to send 0.00001 BTC as it is to send 1 BTC.
Another factor giving Bitcoin value is its utility. Bitcoin allows users to transfer wealth across borders and around the globe in a matter of minutes and at a negligible cost (usually under $1). It also allows for commerce at lower transaction costs for both consumers and merchants.
If scarcity and utility were not enough, Bitcoin has been a proven way to protect and grow wealth over time. Yes, it is volatile from day to day or week to week, but ask anyone that invested a year or two years ago if they care much about the short-term volatility.
Furthermore, Bitcoin is acting as an inflation hedge in Venezeula and other places around the globe where central banks have debased the value of the currency. It is literally saving lives of families in Venzueala that are using it to preserve and grow their purchasing power while the Bolivar is facing inflation at 1,000% or higher in 2017. These families can still afford to purchase food and other necessities because they quickly transfer their fiat into Bitcoin.
But the potential for hyperinflation is not isolated to Venezuela or a small group of smaller nations. Rapidly increasing borrowing and spending by the U.S. federal government has ballooned the balance sheet of the Federal Reserve and increased the national debt to $20 trillion in a short time period. When you factor in unfunded liabilities and off-balance sheet debt, the number is much higher and likely already unsustainable.
There will be a point of reckoning for the value of the U.S. dollar, which has already been dropping precipitously in 2017 against the forecasts of just about every economic “expert” and government agency.
Inflation has remained remarkably tame considering the massive amount of printing and debt monetization by the Federal Reserve following the 2008 financial crisis. I believe that it is only a matte of time before people lost trust in the U.S. dollar and inflation spirals out of control. That could easily lead to hyperinflation, in which the prices of everything would skyrocket.
In fact, this inevitable crash of the U.S. dollar is likely to be hastened by the growth of Bitcoin. Bitcoin, along with gold, would skyrocket as a safe haven and store of value under such circumstances. I believe Bitcoin and gold are complementary assets that all investors should consider owning together in their portfolio. Everyone likes to pit Bitcoin against gold, but they actually work very well together and have similar philosophical appeals.
Remember that Bitcoin is deflationary by definition, with a fixed supply of coins created at a decreasing rate. It is the anti-dollar in many ways, including being a voluntarily-adopted currency in which there is no coercion or threat of violence to compel its use.
But we do not have to speculate about the potential for the U.S. dollar to lose value. It has already lost roughly 97% of its purchasing power since the Federal Reserve was created in 1913.
Notice the sharp declines following every move to de-link the dollar from any physical backing by gold or force its use upon the people. Bitcoin and cryptocurrencies in general stand in stark contrast to the dollar, which really only retains it value through compelling use with violence.
But there is another reason that isn’t discussed much when attempting to forecast the future price of Bitcoin.
Many of the wealthiest and most powerful people in society attained their wealth through the ability to print the world reserve currency or ability to access it at near zero rates. Indeed, much of the prosperity of Western nations has come from the acceptance of dollars in trade around the globe.
I think the people running the government behind the scenes and the central bankers (or do I repeat myself?) are beginning to see the writing on the wall. They ignored it for quite some time, but as Gandhi put it:
First they ignore you, then they laugh at you, then they fight you, then you win.
Western governments, central bankers and the media that support them, totally ignored bitcoin for the longest time. Then they ridiculed it, claiming it was just imaginary internet money that would never be worth much.
When the price climbed above $1,000 and then $2,000, I think they started to panic. With the growing number of transactions and widespread acceptance at places including Microsoft (MSFT), Overstock.com (OSTK), Expedia (EXPE) and even Subway, it suddenly wasn’t a laughing matter. They could not longer write off bitcoin as just for drug dealers and nerdy computer coders.
I imagine as the legitimacy of the currency has grown, there has been many back-room conversations over scotch and expensive cigars concerning how to deal with Bitcoin. After all, it is precisely the ability to print the world reserve currency that has given such great power and economic advantage to the elite in Western nations, with some minor trickle-down benefits to keep the masses soothed, satisfied, dumbed down and unwilling to revolt.
So, we are probably just now entering the stage where “they fight you,” with the recent SEC ruling a likely first shot across the bow of the cryptocurrency sector. But one was has to wonder why they have allowed it to grow and progress to this stage without major intervention?
It is probably just technical ignorance and their inability to see the future. But one theory is that the rich and powerful have been buying up Bitcoin and other cryptocurrencies in a bid to control the supply and have some stake in the future of money.
Perhaps the Federal Reserve and other power brokers in the United States that have benefited so much from the ability to print the petro-dollar have come to understand that their days are numbered. The world is shifting away from fractional reserve fiat paper money and the legacy banking system in general. It won’t happen overnight, but the writing is on the wall.
So, they are either going to fight against it and attempt to make it illegal or use their wealth and printing presses to acquire and control as much of it as possible.
I believe that Bitcoin has the potential to level the playing field, free humanity and enrich the lives of everyone that holds it. It is ushering in a new era of decentralization and with it will come the much-needed decentralization of wealth, power and resources in the world.
The new wealth that is being created is available to all, not just those that are well connected or have royal bloodlines. Acquiring wealth and freedom in the new cryptocurrency paradigm does not require that you exploit your fellow man, commit fraud, fudge the books, pollute the environment, threaten or use violence. This is the beauty of our revolution and few still see it coming.
If they fight, they face a battle they cannot win. Just ask the Recording Industry Association of America (RIAA). How effective have they been at stopping torrents, even with their deep pockets, political connections and troves of ivy league lawyers?
With decentralized systems, there is no headquarters to raid, no servers to shut down and no leaders to arrest. They have tried to “make an example” of people they have caught, thrown the books at them, locked them up in cages for years, yet the number of torrent downloads have only increased. They continue to shut down Pirate Bay sites and new proxies pop up twice as fast.
So, if they can’t beat Bitcoin and the growing community of cryptocurrency enthusiasts, they will have to join them. What does this mean exactly?
If I was in their position, I’d probably look to buy up as much of this new money as possible, while the paper money that I can print in unlimited quantities still holds value. Consider this for a moment… whales with printing presses.
Many people have written about the effect of the rich and institutional money coming into the cryptocurrency markets. This is slowly starting to happen and this alone is likely to continue driving prices significantly higher.
But what happens when the wealthy central bankers wise up and realize what is happening to their power and future wealth? What happens if they decided to use not only their personal wealth, but their ability to create money in order to buy up the limited supply of Bitcoin available?
Senators in Australia are putting their political differences aside and are banding together to urge the Reserve Bank to back Bitcoin as an official currency. Japan has legalized Bitcoin and eliminated taxes on the currency. South Korea, Russia and a growing list of nations are getting onboard. Bitcoin and cryptocurrencies are the future of money and as this trend accelerates, the demand for this asset will increase significantly.
Economics 101 tells us the increased demand with limited/flat supply leads to higher prices. Suddenly, those wild price forecasts for $1,000,000 Bitcoin don’t seem so outlandish.
John McAfee says it will hit $500,000 with 3 years and has offered to wager $10 million and “eat my d!@& on national television” if the price does not exceed his forecast.
That is something that I don’t care to see. And if my theory about banks getting involved is true, we won’t have to.
If Bitcoin was valued at $1 million each, the total market cap would be $16.5 trillion. This is roughly equal to the M2 money supply of the United States alone. The value of stock markets is $67 trillion, the global M2 money supply is estimated as closer to $69 trillion and the chart below shows all money at around $84 trillion.
So, Bitcoin at $1 million would be just one quarter (25%) of the value of stocks or the global money supply. It would be just 20% of the value of all money (including bank deposits, notes and coins).
If we want to consider the estimated value of stocks and bonds combined at over $100 trillion or the estimated value of derivatives at $700 trillion+, Bitcoin at $1 million ($16.5 trillion market cap) is just a fraction of these values.
Of course, this does not guarantee that Bitcoin will hit $1 million. But it helps to some perspective on the possibility.
You can obtain exposure to the rising Bitcoin price via the Bitcoin Investment Trust (GBTC). However, I believe this defeats many of the benefits of owning Bitcoin, including decentralization of your money, limiting third-party risk and becoming your own bank, not to mention the hefty premium. The easiest way to obtain Bitcoin in the United States is via coinbase.com or gemini.com. Bitcoin ATMs have popped up around the country, but expect to pay a premium of 10% or more for the convenience.
While the investment returns from Bitcoin have been amazing, many of the other cryptocurrencies that we hold in the GSB portfolio have outperformed Bitcoin by a wide margin. We also research and participate in various initial coin offerings (ICOs) or token sales, which has proven to be a very lucrative way to invest in blockchain companies in their early stages of development.
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