For the past few months I’ve been obsessed with Bitcoin and cryptocurrencies in general. The digital currency that at first felt like a farce kept popping up in my Bloomberg feed and at some point I just could not ignore it anymore. I started reading all I could about this intriguing digital golden coin and was literally pushing my brain to try and comprehend the underlying complexities feeding its value and driving its now undeniable existence.
Then came yet another epic jump in the price back in May from approximately USD 1,500.00 to almost USD 2,500.00. I was hooked and had to be part of this digital gold rush. I was not going to miss the boat again. This was my potential 90s domain name purchase that would reap massive returns, this was my Amazon stock back in the day when it was still priced at ten dollars, this was the long term investment opportunity that I was not going to miss out on. So far so good.
“I was hooked and had to be part of this digital gold rush. I was not going to miss the boat again.”
As I’m writing this article Bitcoin, or as we cryptocurrency connoisseurs refer to it, BTC is worth USD 4,189.13 according to CoinMarketCap, a leading cryptocurrency realtime market capitalization website. And that’s without considering the value of its little brother Bitcoin Cash (BCH), which was born out of a so-called hard fork split just a few weeks back, valued at USD 672.65. Add those numbers up and you get a total value of USD 4,761.78 per collective Bitcoin unit. But there’s room for more wealth generation, according to different analyst reports that I’ve recently devoured. Just last month I read an interesting article on CoinDesk titled “Goldman Sachs Eyes Bitcoin Price Near $4,000 in Latest Analysis“. Mind you, the price of BTC was USD 2,500.00 back then. Well the bank’s chief technician, Sheba Jafari, was right and she got it right just five weeks later.
Other reports that caught my attention made even bolder predictions of a potential Bitcoin future valuation of USD 50,000. Then this morning I saw the video below regarding Bitmain, a leading maker of mining chips and machines and one of the biggest Bitcoin mining companies in the world, mining a staggering quarter million dollars revenue per day.
What struck me the most was Bitmain’s founder Wu Jihan’s take on the future Bitcoin price. He believes that it’s quite possible the digital currency will be worth one hundred thousand dollars by 2022. Sheba Jafari, if you’re reading this, now is the time to reach out and let us know your view on the matter.
Bitcoin price going up to one hundred thousand dollars is quite possible within five years.
As my work day unfolded, Jihan’s bold statement kept on resonating in my head. I had to take matters into my own hands and give substance to the matter. From all the previous Bitcoin future-valuation reports that I read, there were two predictive assumption-based approaches that stuck with me. Bitcoin’s future value could be predicted by the following two assumptions:
- Extrapolating the total gold reserve value/total money value ratio to Bitcoin;
- A minimum of 1% of our current financial system’s total value moving into Bitcoin.
Let’s go ahead and entertain these assumptions and give the numbers a go.
Gold Valuation Logic Applied To Bitcoin
As is the case with gold, there’s also a finite amount of Bitcoin. Roughly twenty one million; 20,999,999.9769 BTC to be exact. More than sixteen and a half million Bitcoins have been mined already and are currently in circulation. The other four and a half million Bitcoins will have been mined by 2140. Nevertheless, the number is known and it’s finite. Very much like gold still being mined, being a finite resource, and knowing what the current total gold reserves are.
Additionally, both gold and Bitcoin are largely used as a way of storing value. This makes Bitcoin a realistic contender to replacing gold as being the main underlying value component to our future financial system.
The total money in the world is currently conservatively estimated at sixty trillion dollars. That’s USD 60,000,000,000,000, just to give you a more visual depiction. In this case I only regard money in the form of bank notes, coins, and checking/savings account for the sake of clarity.
As for gold, the World Gold Council estimates the current total gold reserve at 187,200 tonnes. At a price of USD 1,250 per troy ounce, reached on 16 August 2017, one tonne of gold has a value of approximately USD 40.2 million. The total value of all gold ever mined would exceed USD 7.5 trillion at that valuation and using WGC 2017 estimates.
Our initial approach of Extrapolating the total money/total gold reserve value ratio to Bitcoin can now easily be quantified.
USD 7.5 trillion (Gold)/USD 60 trillion (Money) = 1/8
As of today, Bitcoin has a total value of approximately USD 69.12 billion dollars. (16.5M*USD 4,189.13= USD 69,120,645,000)
In order to completely replace gold’s total value relative to the total money in the world, the price of Bitcoin would still have to increase significantly. The price of Bitcoin would grow by a multiplier of approximately 108.5. (7.5 trillion/69.12 billion=108.5)
At today’s price, Bitcoin’s future potential value would be 454 thousand dollars (108.5*USD 4,189.13) under this scenario and likely fully materialize closer to the year 2140 than 2017. Consider a linear growth path from here on and Bitcoin’s predicted future value under this ‘gold valuation logic applied to Bitcoin’ model would be USD 22,481.81 by 2022.
Consider a linear growth path from here on and Bitcoin’s predicted future value under this ‘gold valuation logic applied to Bitcoin’ model would be USD 22,481.81 by 2022.
1% Total Money Moving Into Bitcoin
As Bitcoin keeps gaining terrain and is gradually accepted as a real currency alternative, it is not unrealistic to assume that at some point at least one percent of the world’s circulating money will reside in Bitcoin. As of today, Bitcoin enjoys a market capitalization of USD 69,120,645,000. This compared to the current total money in the world (roughly 60 trillion dollars), gives Bitcoin a current “penetration rate” of 0.0115% into our dominant contemporary financial system.
As more money moves into Bitcoin, a penetration rate of 1%, would entail an increase of the current penetration rate of roughly 8600%. In other words, a multiplier of 86. Now multiply Bitcoin’s current value with this number and you get a mind-blowing future valuation of one Bitcoin at USD 360,265.00 (USD 4,189.13*86).
A more conservative approach under this assumption. If Bitcoin’s total worth would grow up to 1% of today’s total money available in the world, Bitcoin’s total worth would be 600 Billion dollars. Now divide this number by the total finite future units of Bitcoins and you are left with a future price prediction for Bitcoin in the figure of USD 28,571.43.
The Year 2022
There it is. The magical numbers to our two predictive assumption-based approaches. And that’s truly what they are, magical. Nothing more, nothing less. Sure, this is an utterly unrealistic and highly debatable approach to predicting the future worth of Bitcoin, but at least I have some numbers to put the resonating words of Wu Jihan to rest for now. For the sake of safeguarding a conservative outlook I will settle for the “less promising” option.
Looking at the current price of Bitcoin, I say we’re still in the safe zone and looking at an up-worth potential of a good 500%. Let me know you’re take in the comment section below.