Ask CryptoVantage: What’s the Realistic Ceiling for Bitcoin Price?

Estimating Bitcoin’s Future Price

The current supply of bitcoin is around 18,500,000 out of a total 21,000,000 (as more will be mined in the future). For the sake of this article, we will use the full 21,000,000 as the supply of bitcoin when calculating potential price ceilings.

One method of estimating future bitcoin prices is to estimate the total value of all bitcoins (commonly referred to as “market cap”) at some point in the future, and divide it by the total number of bitcoins. This gives you an estimated price per bitcoin. For example, bitcoin’s market cap is currently around $1.1 trillion USD, and if we divide this by the current supply of 18,500,000, we get a current price of around $59,000 USD. If we were to estimate that bitcoin’s market cap will be worth $10 trillion USD in 5 years, and then divide that by the total supply of 21,000,000, we get an estimated future price of $476,000 USD.

But how high can the market cap really go? Let’s dive into some possible scenarios below.

Scenario #1: Bitcoin Reaches Parity with Gold

Approximately 250,000 metric tons of gold has been discovered in the world. At today’s price of $1,730 USD per troy ounce of gold, that puts gold’s total market cap somewhere between 10 and 15 trillion USD.

Bitcoin shares a lot of properties with gold and is treated by investors in similar ways. For example, gold and bitcoin are both scarce assets that are hard to produce, which makes them good store of value assets to protect against the effects of inflation. Bitcoin has some advantages over gold in that it is much easier to store and transfer bitcoin than it is gold.

Bitcoin has already reached 10% of gold’s market cap, and many believe it is a matter of if – not when – bitcoin’s market cap reaches parity with that of gold. If this were to happen, the price of each bitcoin would be between $476,000 and $714,000 USD.

Scenario #2: Bitcoin Captures Market Share from Real Estate, Art, Stocks, Government Bonds

Gold is not the only store of value asset on the market. In fact, it is only a minor part of the global store of value market. Others include real estate, government bonds, art, stocks, and other precious metals. It is hard to know how much value is stored in these assets, but their combined market cap is in the hundreds of trillions of dollars. For argument’s sake, let’s say that there is a global store of value market cap of $200 trillion USD.

It is impossible to know how much of the store of value market will be eaten up by bitcoin, but it is already being treated as a legitimate store of value. Many store of value assets are only used to store value because cash loses its purchasing power over time due to inflation. For example, people buy real estate as a way to store value, which causes the price of real estate to be higher than it would be if it didn’t have the “store of value premium”.

People and businesses are increasingly storing their wealth in bitcoin, and as this is happening, it is taking away the value from other store of value assets. If bitcoin takes 20% of this $200 trillion USD store of value market, the price of each bitcoin would be $1.9 million USD. If bitcoin manages to take half of the total store of value market, each bitcoin would be worth $4.8M.

Scenario #3: Hyperinflation

When considering the price ceiling of bitcoin, or any future price valuations, it is important to frame them in terms of today’s dollars. This is because the future level of inflation is impossible to know. If, for example, the US dollar undergoes hyperinflation, the purchasing power of the dollar will trend to zero, meaning the dollar value of bitcoin will trend to infinity. All of the calculations above are priced in terms of today’s dollars.

During periods of high inflation, investors typically move their wealth from cash and high risk assets into store of value assets. For example, many times in the past investors have put their money into gold during uncertain times. Because bitcoin is a store of value asset that is being treated similarly to gold, it is likely that if the US dollar were to undergo hyperinflation, many would turn to bitcoin as a place to store their wealth. As demand for bitcoin increases during a hyperinflation event, the fixed supply of bitcoins would become exponentially more valuable.

Takeaways

• You can determine bitcoin’s price ceiling by estimating the future market cap of bitcoin and dividing by the 21,000,000 bitcoin supply.
• Bitcoin is currently being treated similarly to gold by investors, and it is therefore plausible that bitcoin could reach the same market cap eventually. This would make each bitcoin worth between $476,000 to $714,000 USD.
• Bitcoin’s store of value properties enable it to take market share from other store of value assets such as real estate, government bonds, art, stocks, and precious metals. The future value of bitcoin will depend on how much of the market share it takes.
• The future levels of inflation are unknown, but if the US dollar undergoes hyperinflation, the purchasing power of the dollar will trend to zero, and the price of bitcoin will trend to infinity.