Here come the million dollar price targets for Bitcoin. Should we believe any of them?

Because of all the bullish enthusiasm Bitcoin (BTC -0.11%) and the new spot Bitcoin ETFs, it's no surprise that we're starting to see some very aggressive price estimates for Bitcoin. Of course, what's getting the most attention is Cathie Wood and Ark Invest's new $1.5 million forecast.

While $1.5 million may sound like an unimaginably high number for a single cryptocurrency token, you'll be surprised at how easy it is to find Bitcoin price estimates in the millions. In fact, there are predictions for Bitcoin of $10 million, $100 million, and even $1 billion. So how realistic are these price estimates?

Past results are no guarantee of future performance

The most common approach to setting a $1 million price target is simply to look at how Bitcoin has behaved in the past and then infer how it might behave in the future. If you look at Bitcoin's price history, you'll quickly see how easy this is. For example, it took approximately six months for Bitcoin to increase its value tenfold from $1 to $10, another six months to increase its value tenfold from $10 to $100, and another six months to increase its value from $100 to $1,000 increase tenfold.

Image source: Getty Images.

So you can see where I'm going with this. If you rely solely on past performance, you could fall into the trap of assuming that the price of Bitcoin can routinely rise 10x every six months or so. With a current price of $50,000, that will reach a price of $500,000 by mid-2024. If you assume that the price of Bitcoin can double in the following six months, then voilà! By the end of the year, you will have reached $1 million worth of Bitcoin. Congratulations!

Of course, there are different variations of this approach. One of these includes consideration of the halving, a blockchain-specific event that only occurs every four years. As a result of this halving, the value of Bitcoin tends to skyrocket. 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 dizzying price assumptions for Bitcoin.

Market size comparisons

Another approach to setting a $1 million Bitcoin price is to compare the market size. If you compare the value of Bitcoin to the value of any other well-known financial asset, you can come up with some pretty impressive numbers.

For example, since Bitcoin is often referred to as “digital gold,” it might make sense to compare Bitcoin's market value (currently about $1 trillion) to the value of all physical gold in the world (which is about $13.7 trillion is). . If you buy into the argument that “digital gold” will eventually displace “physical gold” as a store of value, then you've found a very clever way to show that Bitcoin's value could rise by a factor of about 10x 15x. This brings you to a price of $500,000 for Bitcoin pretty quickly.

But do the numbers make sense?

My concern is that at some point the numbers no longer make sense. For example, given the current coin supply of 20 million Bitcoin in circulation, a $1 million price target assumes a $20 trillion market valuation for Bitcoin.

But think about that number for a moment. That $20 trillion is nearly seven times the market capitalization of the world's most valuable publicly traded company (Microsoft or Apple, Make your choice). It is approximately equal to the annual gross domestic product (GDP) of the United States. And it's about half the total value of the S&P 500, currently valued at $40 trillion.

In short, a $20 trillion Bitcoin valuation is only possible if the entire US economy suffers a major shock. Unfortunately, that likely means some kind of market crash. In such a scenario, money would likely flow from dollar-denominated financial assets into Bitcoin very quickly.

Cathie Woods price prediction of $1.5 million

With all the praise to Cathie Wood, I think she has the best $1 million valuation model for Bitcoin. It is based on looking at Bitcoin's use cases, extrapolating future growth prospects, and then aggregating the values ​​of these different use cases. And the math behind the model is completely transparent and publicly available, so you can check the numbers yourself.

However, I have a hard time imagining Bitcoin hitting $1 million any time soon. Certainly, Bitcoin's trading price could be around $1 million at some point within the next decade. But be careful if you listen to anyone telling you that the price of Bitcoin will rise to $1 million in 2024 just because Wall Street now has Bitcoin ETFs you can sell.

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