With Bitcoin (BTC -0.29%) With the best January performance since 2013, it’s no surprise that analysts are raising their price targets for this suddenly hot cryptocurrency. Bitcoin is up nearly 40% in January, and that has prompted a completely revised forecast of how high this crypto could fly in the years to come.
Ark Invest’s Cathie Wood — known for her previously controversial $1 million price target for bitcoin — has just increased her bitcoin price prediction. She now believes Bitcoin could hit $1.48 million by 2030. But how realistic is this prediction?
The Long-Term Growth Story for Bitcoin
According to Wood, the case for Bitcoin at these stratospheric levels is really a story of tremendous growth on a global scale. Over time, the story goes, bitcoin will account for an ever-increasing share of global institutional wealth. It will continue to scale globally as more nations accept it as legal tender and more people use Bitcoin to conduct online transactions.
Image source: Getty Images.
This story gets more interesting when Ark Invest lays out the specific numbers behind its assumptions. Ark Invest proposes that there will be eight primary market segments (e.g. “emerging market currency” and “money transfer”) where Bitcoin will grow. Based on estimates of bitcoin’s rate of penetration in each of these markets, it is possible to develop a bearish, a baseline, and a bullish scenario for the price of bitcoin.
How Fast Can Bitcoin Grow?
For example, Ark Invest suggests that Bitcoin could account for up to 10% of emerging market M2 money supply. So far, there are only two nations that have adopted bitcoin as legal tender – El Salvador and the Central African Republic – so this seems a bit optimistic. According to some economists, nations struggling with hyperinflation or depreciated currencies could opt for bitcoin.
Ark Invest also suggests that Bitcoin could capture 25% of the “remittance assets” market and 50% of the “digital gold” market. So imagine that one in four migrants around the world sends money back to family and loved ones in the form of bitcoin, and that every second central bank around the world decides to build up their bitcoin reserves instead of their physical gold reserves. Additionally, Ark Invest suggests that Bitcoin will soon account for 6.5% of institutional investors’ portfolio holdings.
All of these numbers are aggressive, but not entirely unthinkable. It really depends on how you view global growth and how confident you are in fiat currency.
In my view, the “base case” estimates provided by Ark Invest make much more sense than the “bullish case” numbers. For example, in a baseline scenario, Bitcoin will account for just 3% of EM M2 money supply. And Bitcoin will make up just 2.5% of institutional investors’ portfolios. The problem with this is that even Ark Invest acknowledges that these “base case” assumptions only support a future price for Bitcoin of $682,800, well below the hopeless $1.48 million figure.
Do the numbers make sense?
Additionally, it is helpful to stress test these assumptions about Bitcoin against current assets in global markets. Given that Bitcoin has a fixed coin supply of 21 million, a price target of $1.48 million implies a total market cap of $31 trillion.
How big is that for a number? Well, the total value of the world’s physical gold supply is estimated at around $12 trillion, so Bitcoin would be worth more than 2.5 times all the gold in the world today. In addition, the total value of S&P500 is approximately $32 trillion. So Bitcoin would be worth nearly as much as the 500 largest publicly traded companies in America today.
For this reason, I don’t think $1.48 million is a reasonable price target for Bitcoin. Even a $1 million price target seems like a bit of wishful thinking on the part of bitcoin bulls. That would mean a market cap of $21 trillion, which is nearly 10 times the current market cap Apple. Would you rather own all the bitcoins in the world or all the shares in 10 different Apple companies?
While I’m bullish on Bitcoin over the long term, I also think it’s important to have a sense of scale here. If Warren Buffett thinks that the value of all bitcoins in the world is not even $25, and Cathie Wood thinks that the value of all bitcoins in the world is $31 trillion, then a reasonable person would say that the true value of bitcoin somewhere in between lies the middle. I’m optimistic that Bitcoin will eventually regain its $1 trillion market cap – I just think it will take longer than some people think.
Dominic Basulto has positions in Bitcoin. The Motley Fool has positions in and recommends Apple and Bitcoin. The Motley Fool recommends the following options: long March 2023 $120 calls on Apple and short March 2023 $130 calls on Apple. The Motley Fool has a disclosure policy.
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