$430k BTC price rationale explained by Coygo CEO
Being the CEO of a cryptocurrency startup I am constantly asked about BTC and its future potential. I suppose amongst my social circles I’m the “token crypto guy”. When discussing Bitcoin the question always arises: is it too late to buy BTC or does it still have room to grow?
In April of 2018 I published an article titled Why I like cryptocurrencies as a long-term investment in which I calculated a realistic price target of $50k per BTC. At the time 1 BTC was going for about $9k. As we have now surpassed that $50k milestone I’m back again to continue to fuel the hype train and explain why BTC still has a large upside potential. This time I’ll use public data regarding retirement accounts in the US and abroad to propose a hypothetical scenario in which we reach a value of ~$430k per BTC, and another which proposes a value $563k per BTC.
Today I’ll present the following scenario:
- What if over the next 5 years, as BTC spot ETFs are approved by the SEC, 5% of U.S. individual retirement accounts were allocated to BTC?
- BTC’s low inflation rate, coupled with BTC holders’ famous refusal to sell, would create a supply shortage when massive influxes of retirement money looks to buy BTC.
- What if, due to BTC’s supply shortage, 50% of those BTC allocated to retirement accounts were purchased from the ~1.1 million new BTC that will be produced by mining over the next 5 years?
Please note that this is all napkin math with the goal of providing an easy-to-understand view of the potential of BTC at a high level. This is not a 100% accurate calculation (duh). Also note that all of this assumes that BTC will remain the dominant asset within the cryptocurrency asset class as a whole and that institutions will continue to primarily allocate to BTC. Considering BTC’s first-mover advantage and approval by institutions and regulators this seems likely to remain true.
As usual, this comes with a big disclaimer: I’m not a financial advisor and this is not financial advice, this is my personal thoughts on the matter. Do your own research, never invest more than you’re willing to lose and always be skeptical of anything you read online related to cryptocurrencies.
$434k BTC — What if 5% of U.S. individual retirement accounts were allocated to BTC?
First lets consider if 5% of individual retirement accounts (IRAs) in the US were to be allocated to BTC over the next 5 years. A lofty assumption perhaps, but Bitcoin has surpassed every possible expectation as a growing new asset class and is well on its way to becoming the equivalent of digital gold. Let’s indulge the assumption and crunch some numbers!
Total value of US individual retirement accounts (IRA & 401k)
In 2020, there were estimated to be 12.2 trillion dollars in various individual retirement accounts (IRAs) for US residents and in 2021 there were estimated $6.9 trillion in 401ks, totaling about $19.1 trillion held in retirement accounts for American individuals. I will only consider individual retirement accounts for this calculation. This does not include state and local government plans, annuities, private and federal DB plans, which total ~$34.8 trillion.
Once a spot Bitcoin ETF (not a futures ETF) is approved and integrated with most mainstream IRA providers, BTC will be available to all Americans in their traditional retirement accounts and will be backed by real BTC that is bought and held off the market.
Where will the BTC for retirement accounts come from?
As of Q4 2021, >89% of BTC have already been mined.
Over the next 5 years, ~1.1 million new BTC will be produced by mining.
Considering 80% of Bitcoin’s circulating supply is owned by long-term holders who never sell, most BTC that is allocated to the IRAs of Americans over the next 5 years will likely be purchased from those remaining ~1.1 million unmined BTC when they hit the open market. For these calculations I am going to assume that 50% of the BTC being allocated to retirement accounts in the (hopefully near) future will be sourced from the remaining unmined BTC. Some BTC will come from existing holders selling but it looks likely that the majority will be bought from miners as they are mined and hit the market. Don’t underestimate the diamond hands of BTC holders!
For an example of this in action we can look at Grayscale, whose investment product GBTC is one of the most common ways for institutions to currently gain exposure to BTC. In March 2020 Grayscale had purchased 33% of all BTC mined in a 3 month period. As more institutions look to acquire BTC the scarcity of available supply will only compound.
Given all of this information, we can estimate that if 5% of US retirement accounts is allocated to BTC alone using those 1.1 million BTC mined over the next 5 years, each BTC would be worth:
(50% of (5% of 19.1 trillion in US retirement accounts)) / 1.1 million BTC= $434,091 per BTC.
$563k BTC —What if retirement accounts outside the U.S. allocated 5% to BTC?
Now remember that this estimate is only considering if American retirement accounts began allocation just 5% of their portfolios to BTC. Consider if just two or three more of the largest economies in the world, such as the UK or Japan, were to also begin allocating 5% of their residents’ retirement accounts to BTC.
- UK: As of 2019, pension fund investments in the UK amounted to more than 3.5 trillion U.S. dollars.
- Japan: Japan has ¥235.0 trillion (US$2.2 trillion) earmarked to support retirement
Note that for this calculation I’ll make the same assumption that 50% of these BTC allocated to retirement accounts will be sourced from the ~1.1 million new BTC produced by mining over the next 5 years.
If we consider that 5% of IRAs in the USA as well as retirement funds in the UK and Japan were to be allocated to BTC and bought from the remaining 1.1 million BTC mined over the next 5 years, that would calculate the value of each BTC to:
(50% of ((5% of 19.1 trillion in USA) +(5% of 3.5 trillion in UK) + (5% of 2.2 trillion in Japan))) / 1.1 million BTC = $563,636 per BTC.
Now consider that this number does not account for other types of retirement accounts in the US like the popular 401k that hold trillions, it doesn’t account for all the money in different pension funds across the globe (like this $40,000,000,000 South Korean Public Pension Fund), it doesn’t account for any billion dollar companies allocating a portion of their balance sheets to BTC, and it doesn’t account for the many other countries with massive wealth in their retirement accounts. If any portion of this wealth is allocated to BTC over the next few years (which now seems inevitable) it would drive that value per remaining BTC well past $563k per BTC.
Looking ahead
It’s 2021 and I remain a perma-bull for BTC’s long-term potential. Of course these calculations include a number of assumptions and are in no way going to be 100% accurate but I hope they provide a basic high-level explanation of why BTC still has so much upside potential if you truly believe that it will remain the dominant global, borderless and censorship-resistant digital currency. Given the developments over the past few years that notion has gone from ludicrous, to slightly intriguing, to downright possible.
I’ve mined, bought and held BTC since 2010 and will continue to hold until I think we’ve reached mass adoption and the value of BTC begins to plateau. It’s my hope that when that day arrives I don’t need to cash out, I can simply spend my BTC on goods and services directly. It’s now a decade later and the future of BTC looks more promising than ever!
While the US continues to print trillions of dollars out of thin air, lend out money with virtually no interest, and drive inflation fears amongst investors, BTC looks more appealing every day. We have only just begun to see the true potential of a global, borderless and completely digital currency that is not controlled by any single entity or government.
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