- >Investors Are Predicting a $1 Million Bitcoin. Are They Right This Time?
Investors Are Predicting a $1 Million Bitcoin. Are They Right This Time?
The bitcoin market has become increasingly bullish over the past few months. With bitcoin’s price breaking the $10,000 barrier in late July, it has remained above this support level ever since, with its current value flying past $13,000 at the time of publication.
Much of the commentary has identified institutional and corporate investment as one of the main drivers of this steady climb. The growing involvement of the likes of PayPal, MicroStrategy, Snappa, Square, and Stone Ridge has indicated that the ‘mainstream’ is warming to bitcoin. As a result, cryptocurrency analysts across the board have begun (or resumed) forecasting some very eye-catching price targets for bitcoin, from $50,000 to $1 million over the next few years.
Given that bitcoin is gaining adoption as a store of value, are such optimistic calls right this time? Well, the truth is somewhere in the middle. Bitcoin is obviously building momentum in the financial and corporate world, but at the same time, we need only look to its nearest analogue — gold — to see that a limited supply and a solid reputation doesn’t equal an endlessly rising price.
Simon Chandler | Nov 11, 2020
Optimistic Bitcoin Price Predictions Are Back
Optimistic bitcoin predictions were pretty common two or three years ago, in the wake of the cryptocurrency’s rise to nearly $20,000. Anthony ‘Pomp’ Pompliano (among many others) famously said bitcoin’s price would hit $100,000 by 2019, while crypto venture capitalist Tim Draper has been predicting a value of $250,000 by 2022.
Now, in the wake of renewed interest in bitcoin, ambitious bitcoin price predictions are back in vogue. None are quite as ambitious as the forecast provided by Global Macro Investor CEO Raoul Pal, who in early October told Stansberry Research that he expects a bitcoin price of $1 million in five or six years or so.
Pal isn’t alone in his enthusiasm, with Ark Investment Management recently publishing a report which predicted a bitcoin market cap of between $1 trillion and $15 trillion in the next five to ten years. In its view, the likeliest scenario is a bitcoin market cap of $3 trillion by 2025.
Source: Ark investment Management
Assuming a market cap of $3 trillion in 2025, when the supply of bitcoin will be roughly 19.5 million, this would result in a bitcoin price of approximately $153,846.
This fits in with other recent predictions, with Bloomberg Intelligence analyst Mike McGlone forecasting a price of $100,000 by 2025.
“About four years after initially reaching $1,000, [Bitcoin] added a zero. Considering normal maturation, about double the time frame from $1,000 to $10,000 would come in around 2025, for Bitcoin to potentially add another zero,” he wrote.
Plausible, But Not Entirely Accurate
Such forecasts and narratives align with the current state of Bitcoin adoption. We’ve famously had software firms MicroStrategy and Snappa convert their cash reserves into bitcoin, and more recently the likes of payment firm Square and Stone Ridge Asset Management have also turned to bitcoin as a reserve asset.
With the Federal Reserve creating money on a massive scale and also relaxing its approach to inflation, it’s highly likely that inflation will rise significantly from next year. This in turn will drive even more corporate and institutional investors towards bitcoin, which is increasingly being seen as a hedge against inflation.
However, while this would indicate a rising bitcoin price, it’s not clear that the price of bitcoin would surge to $100,000, let alone to $1 million (or beyond).
Likewise, most of the predictions concerning bitcoin give the impression that its price will rise continuously upwards in a linear and seemingly irreversible fashion. Few (if any) of the optimistic forecasts suggest that bitcoin could rise to, say, $50,000, then drop back down to $10,000, then rise to $25,000, and so on.
This is an important point, because if the example of gold is anything to go by, bitcoin won’t rise perpetually. As with gold, its status as a store of value and inflation hedge will mean that it will rise during some periods, and fall during others, in parallel with economic cycles and fluctuations.
Even highly optimistic forecasters such as Raoul Pal categorise bitcoin along with gold, in that both serve the same basic function.
But Pal fails to note that gold’s price doesn’t conform to the impressive trajectory he suggests for bitcoin.
For example, the price of gold rose to what was then an ATH of $1,917 in August 2011, in the wake of the 2008 financial crisis (this is equal to roughly $2,213 in today’s U.S. dollars). It then fell as low as $1,000 by the end of 2015 and began rising steadily upwards from the middle of 2019, when forecasts of a recession became more frequent.
Source: Yahoo! Finance
Such ups-and-downs occurred despite the fact that, like bitcoin, gold has a limited supply. They also occurred despite the fact that gold is already a highly reputable and mainstream asset: central banks having been net purchasers of gold for a decade, while hedge funds have piled into gold since the coronavirus pandemic.
Source: Metals Focus, Refinitiv GFMS, World Gold Council
No one is predicting a gold price of $100,000 or $1 million. The highest prediction you can possibly find right now, despite the world’s dire situation, is at roughly the $4,000 mark in the next couple of years.
Such a prediction has been offered by Frank Holmes, the CEO of U.S. Global Investors, who adds that this target is for “this cycle.” In other words, the price of gold could rise as high as $4,000 during this period of economic contraction, but it will fall with a recovery.
Few if any people make this point about bitcoin’s price. Yet it’s a very important one, because while the price of bitcoin may rise gradually over the long term, we really shouldn’t expect it to rise indefinitely or spectacularly. It may rise to new heights during the few years of economic stagnation to come, but it’s just as likely to fall afterwards. And so on, for the rest of history.