Many are offering up some aggressive forecasts regarding the price of Bitcoin.
This is nothing new. Cathie Wood of Ark Invest is long on record for this forecast, happening by 2030. Michael Saylor has exceeded this, even going to $10 million with his price prediction. The latest is Eric Trump, boasting how he believes $1 million BTC is in the cards.
Are these projections realistic? This is something that we have to take seriously. Obviously, if this figure does come to fruition, it could change a lot of lives. From where we stand now, that is roughly a 10x in return.
In this article we will look at the prospect of $1 million Bitcoin and what could drive it.
When it comes to market forecasts, I learned long ago not to debate them. The reality is that we have no idea what markets will do. Anyone who watches what takes will realizes markets can do crazy things.
For example, there were many projecting $200 oil. While I know for a fact the global economy cannot handle this level, I do not contest the idea that markets couldn't push it this high. They could.
As for Bitcoin, there are some valid reasons why BTC might be heading towards $1 million. With this asset, it is nothing more than a supply and demand equation.
The overriding belief is that Bitcoin is a store of value. This is coupled with the capped supply which creates scarcity if the demand is high enough. Institutions are now moving into the space through a variety of products, pushing demand to the highest we saw.
Each halving reduces the amount of BTC produced within each block. That also serves to set off FOMO as less is available for those who are latecomers.
We already see institutions buying at a rate 4x that of the mining. A continuation of this would mean prolonged demand exceeding supply.
From a price perspective, that would send things higher.
Is Bitcoin a legitimate store of value?
The answer is actually more nuanced that many consider.
Price stability is required to be a proper store of value. This certainly is not resident with Bitcoin, which is known for its volatility. A store of value means you can get your money out when you want.
Bitcoin, like most assets, can enter the bear. Over the last week, it shed more than 10% of its market cap. This means one who bought BTC 9 days ago lost 10%.
Naturally, this is a bad store of value.
That said, the viewpoint of many, from this perspective, is longer term. Bitcoin has done very well historically. Look at any 5 years timeframe on BTC and you will find nice returns. Hence, over time, Bitcoin returns more than almost every other asset.
The business cycle is what really affects the narrative. This also operates on a longer horizon. Many have concluded we are dealing with 8 year moves, from peak-to-trough and back again.
Of that is the case, when the economy is in decline, asset prices (as well as labor costs) go down. This means money purchases more. The reverse is true during economic expansion. We see a decline in the purchasing power due to the increase in prices.
What ultimately will feed whatever price level Bitcoin achieves will come down to confidence. This is no different than any other asset (or economy). When people have trust in something, they act accordingly.
At present, we see a great deal of excitement over BTC. Many are adding it to the balance sheet, believing it will be a hedge against financial instability. I have a tough time buying into this narrative due to the fact Bitcoin is still a risk on/risk off asset.
What cannot be denied is the fact that if Bitcoin repeats its past performance over the next decade, it will provide these balance sheets with a much larger valuation. This would be offered to any entity (or individual) that is holding it.
It all will come down to demand. Will enough people want to hold BTC causing the capped supply to be outpaced? If this is the case, then Bitcoin has much higher levels in its future.
Of course, there is the potential for the opposite. Bitcoin, in my view, still have a fundamental issue. The network is not great which means transactions take place on other chains. While this could help the price, value is not really generated.
If the masses start to agree with that sentiment, then things could plunge. However, since fundamental is not required for markets, this is far from a certain outcome.
