Ever since its inception, the crypto space has not seen a lack in wild predictions. Even in early discussions with Bitcoin’s founder, computer scientist Hal Finney speculated that if Bitcoin were to absorb all global wealth, it would be worth $10 million USD per unit.
Founder of Social Capital, Chamath Palihapitiya, who initially bought the coin at $100, sees Bitcoin rise to $100,000 in the next 3-4 years, and projects a valuation of $1 million by 2037. “This is a fantastic hedge and store of value against autocratic regimes and banking infrastructure that we know is corrosive to how the world needs to work properly,” he famously said.
Appealing as these projections may seem, what are they based on? How is Bitcoin even valued? And what can we expect in terms of price?
Absorbing Global Wealth
While Hal Finney’s projections may have been extreme, the idea that Bitcoin would ‘absorb wealth’ makes complete sense. The only way its value rises is by investors buying Bitcoin in exchange for something else – ultimately cash.
And if we can say anything about cash in 2021, it is that it is in serious trouble. We’re not just talking about the idea that paper money has been receiving negative attention due to it aiding the transmission of covid-19, but also because as governments have been printing money to support the economy, the value of fiat currency is falling.
Conventionally, investors flee to gold when the economy is under siege, but we live in unconventional times. Stock markets are doing well and rather than gold, more and more investors have been fleeing to Bitcoin.
What this tells us, is that what we are seeing with Bitcoin now, is likely a long term process. Even if the economy were to be doing better, fiat currencies remain subject to downward pressures.
But to what extent Bitcoin will absorb global wealth, we cannot possibly say. One strategist at JPMorgan wrote that Bitcoin could be worth as much as $146,000. He believes there is about $2.7 trillion of “private gold” in the world, which excludes the gold held by central banks. The value of all the Bitcoin in circulation, meanwhile, is roughly $575 billion. This market cap of Bitcoin, he wrote, “currently would have to rise by 4.6 [times] from here, implying a theoretical Bitcoin price of $146,000, to match the total private sector investment in gold via ETFs or bars and coins.”
Bitcoin In The Future
We do believe these projections are realistic, but in our assessment of the coming year, we’ve come to a more moderate projection that accounts for potential correction further up in the year.
For 2021, we project a price of $55,000, likely to be hit in the first quarter of 2021. We expect the year to close between $36,000 and $55,000. More information on this can be found in our recent research paper on Bitcoin.
How much Bitcoin will be worth in future completely hinges on how much people buy into the idea that Bitcoin is the safest place to go as fiat currencies and ancient gold markets crumble. This idea has been rehearsed over and over again in the crypto community and now we’re finally seeing the institutions wake up as well.
The next stop is mainstream adoption, and that’s what we’ll be looking at over the coming weeks.