Bitcoin: A Realistic Price Projection

The irony, is that if Bitcoin soared to $500,000 it would likely mean that your property is now worthless and the supermarket shelves are empty.

The market capitalization of Bitcoin is currently $111 billion, which is around 50% of the entire cryptocurrency market; collectively valued at $214 billion.

A previous estimate of global financial assets was $294 trillion as of 2014.

So, if the entire global financial market rotated into cryptocurrencies in a measured move, then cryptocurrencies could increase to 1000x their current value. If we accept that this event could NEVER happen then we are on the road to a realistic price projection and a $6 million valuation for Bitcoin becomes impossible (Yes, I saw a $10 million prediction this week).

The cryptocurrency enthusiasts who depsise “fiat” and the U.S. Dollar are unaware of the losses that would occur before “mass adoption” of cryptocurrencies, or are unaware of the government’s unwillingness to give up their control of the money supply.

The stock market makes up only 23% of global financial assets and this number would fluctuate depending on the appetite for private vs public assets. Public debt has ballooned with socialist governments and this is seen in the rising debt-to-GDP amongst developed countries. Alongside this, financial engineering has seen a massive elevation in asset values, which was further highlighted recently by Apple’s arrival as trillion dollar corporation.

The financial crisis of 2008 saw global market capitalization of all stocks fall 50% and the same would happen again if those who are calling for an end to the financial system got their way. That $70 trillion stock valuation then becomes $30 trillion at best. I say at best because the 2009 valuation was only saved through a global, co-ordinated central bank intervention on a scale which the world has never seen before.

Had we not seen the moves enacted by the Federal Reserve et al, then more Wall Street banks and their European counterparts would have disintegrated. The contagion domino effect that this would cause would mean that the global value of all stocks is then reduced even more, maybe to around $20 trillion, but so would the value of their book values due to the revaluation of property values and a complete annihilation of the mark-to-market values of property, mortgages and any other leveraged assets which counterparties cannot honour.

The ensuing chaos in financial valuations and an increase in defaults would then hit corporate bonds and financial institution bonds ($90 trillion of our $294 trillion figure) and the unsecuritized loan market (another $60 trillion). The global financial assets estimated at $294 trillion would be reduced to rubble and my estimate is that only $100 trillion of that value would be left standing.

So if we want to estimate the capital flow into cryptocurrencies we then have to assume the appropriation of those assets across the financial world. Public debt and loans would NOT move to cryptocurrency, so we then only have $50 trillion to play with. Stocks will still become a store of value for big investors who don’t trust cryptocurrencies, especially companies with valuable assets, large cash stocks or cyclical, “recession-proof” business models.

The reality therefore is that we won’t see that entire $25 trillion figure moving into cryptocurrency. Let’s consider this chart on gold:

Those who claim to hate fiat and desire a gold-backed or asset-backed currency are maybe unaware that in their utopian days before the Nixon moves in 1970, gold was only 5% of global economic assets. If we had a world that was backed by gold then you can kiss goodbye to mortgages and a world of deflation and poverty.

But let’s get back to the calculation; 5% of our $50 trillion investment pot is $2.5 trillion, which means that if gold was no longer seen as a desired investment, then $2.5 trillion would move into cryptocurrency, which means the entire cryptocurrency market valuation could increase by a factor of 10.

Is it likely that all boats would lifted by the tide? Probably not, so this means that the price of Bitcoin could maybe rise from its current level to a value of $60,000–120,000. It’s a possibility that another coin supersedes Bitcoin and another fortune could be made but the likelihood is that many coins will disintegrate and investors will lose out.

The graph below from Google Trends highlights the curse of the retail investor:

Interest in cryptocurrencies only started to grow in late-2017 when the rally in Bitcoin was well underway. Now that the same assets are trading at a third of their price, nobody wants them. That is the curse of the retail investor. They are driven by a herd mentality and react to the headlines of media but the media are always late to the party and many have invested life savings or remortgaged a home to invest in prices that are now underwater. That exposure, coupled with an 8 month losing streak is one of the reasons for Bitcoin’s decline. There is no volume. Institutional investors are parked and retail investors are over-committed. What’s needed is a strong rally to get them back in play but the recent bearish moves will have shaken many out.

If we ever see another rally it will be when Bitcoin is making headlines for “new highs” and we will see the Google Trends chart rallying again and retail will likely pile in at the next high. This is the way of the markets.

Conclusion

If you read my previous work on Medium, you’ll find my ideas on focusing on crypto as an asset, rather than a currency. The fact is that no government will stand aside and let an unknown gang of developers take control of the money supply without a fight. If we did see it occur it would be through a loss of confidence in governments and central banks and would accompany a destruction of wealth and prosperity that reduces the eventual returns.

If you own Bitcoin then work on the realistic projection that you may increase your investment 10x or 20x from the current price of $6,000, the same return as a decent biotech stock, and use anything else as a bonus.

The irony, is that if Bitcoin soared to $500,000 it would likely mean that your property is now worthless and the supermarket shelves are empty.