Last year was a true coming-out party for virtual currencies. In just one year's time, the combined market cap of all digital coins rocketed higher by nearly $600 billion, which works out to a more than 3,300% increase on a percentage basis. It's perhaps the greatest single-year performance we may ever witness for any asset class.
Bitcoin is leading the cryptocurrency revolution
Leading that charge was the world's most popular cryptocurrency, bitcoin. Even though bitcoin "only" rose in value by 1,364% last year, which would appear subpar relative to its peers, it's risen from less than $0.01 in March 2010 to a current value of more than $8,500 per coin. That's not too shabby of a return in just a shade over eight years! In fact, a $1,000 investment in March 2010, assuming you found someone willing to part with that many bitcoin back then, would have been worth billions of dollars today.
A good number of cryptocurrency investors view bitcoin and its underlying blockchain technology -- the digital, distributed, and decentralized ledger responsible for recording transactions in a transparent and unchanging manner -- as revolutionary. After all, bitcoin was the very first digital currency to become investable back in 2010, and its blockchain offered a means of moving money from one party to another without using traditional banking networks.
Bitcoin also derives value from the perception that it's scarce. Protocols limit the total number of bitcoin that can be mined to 21 million coins.
Nowadays, bitcoin is aiming to become a primary medium of exchange. There isn't another digital currency out there accepted by more physical and online merchants than bitcoin.
It's also the most commonly paired digital currency when it comes to cryptocurrency investing. In other words, an investor often can't buy an obscure digital currency without first purchasing bitcoin and exchanging their bitcoin for tokens in a smaller cryptocurrency.
It's this first-to-market advantage of bitcoin, as well as these other factors noted above, that have some Wall Street analysts and strategists placing some very lofty price targets on the world's most popular token. How lofty, you ask? Let's take a look.
The craziest bitcoin price-target forecasts
While it's really a game of "take your pick" when it comes to wild bitcoin price targets, the following five estimates stand out as particularly mind-boggling.
1. John McAfee: $1,000,000 by 2020
The wildest prediction of all comes from John McAfee, the outspoken former CEO of the antivirus company that bears his name. Using a prediction model, McAfee had originally called for bitcoin to hit $5,000 in 2017, and $500,000 in 2020. However, with bitcoin blowing past $5,000 last year and briefly eclipsing $20,000 per coin, McAfee revised his target estimate to $1 million. McAfee believes bitcoin's relative scarcity and growing adoption provides a path to considerable appreciation over the next two-plus years.
2. John Pfeffer: $700,000 (no time frame offered)
Last month, at the annual Sohn Investment Conference in New York, John Pfeffer, a partner at Pfeffer Capital, laid out his case for why bitcoin could run to $700,000 per coin. Pfeffer's price target relies on two primary catalysts. First, he assumes that bitcoin will replace gold, since it's considerably easier to store and is more secure. Secondly, he opines that bitcoin could replace some form of reserves at global central banks over time.
3. Jeremy Liew & Peter Smith: $500,000 by 2030
Jeremy Liew, the first venture capitalist to back Snap, and Peter Smith, the current CEO of Blockchain, together believe that bitcoin has a shot at hitting $500,000 per coin by 2030. Chief to their thesis is the idea that growing mobile penetration will increase the number of non-cash transactions processed by these devices, driving bitcoin adoption. Liew and Smith suggest that bitcoin may one day account for half of all non-cash transactions, with the aggregate bitcoin user network growing to about 400 million users.
4. Tim Draper: $250,000 by 2022
Also revealed last month was the $250,000 price target by 2022 from venture capitalist Tim Draper. Though hitting $250,000 might appear crazy on the surface, Draper has been right before on bitcoin. When the virtual coin was valued at just $320 in 2014, he predicted $10,000 would be hit in 2017 -- which it indeed was.
5. Fundstrat: $64,000 by 2019
Arguably the loftiest of the shortest-term estimates comes from independent research firm Fundstrat, which has called for an end-of-year $36,000 target for bitcoin in 2019, with a peak of $64,000 during the year. Driving this increase in price, according to the company's head of research, Sam Doctor, is the expected uptick in bitcoin mining. Fundstrat believes bitcoin miners are the primary sellers of bitcoin, which provides a pretty clear downside buffer (i.e., a level where mining would be unprofitable) that bitcoin is unlikely to cross.
My opinion: These estimates are insane
If you ask me, I'd suggest these price estimates are ridiculous. While I've certainly been wrong about bitcoin before, I don't see how any of these price targets are achievable given the hurdles bitcoin has yet to overcome.
For starters, bitcoin's blockchain technology is considerably slower than its peers when it comes to validating and settling transactions. With an average block-processing time of 10 minutes -- i.e., the average amount of time it takes to verify a group of transactions as accurate -- and the need for six validations per transaction, it takes about an hour for a bitcoin transaction to be completely settled. Meanwhile, some of its peers can complete the same process in a matter of seconds. The Lightning Network may offer bitcoin hope of closing this gap, but there are no guarantees.
Another issue with bitcoin is that it may never be broadly adopted as a medium of exchange. Around 40% of today's existing coins are believed to be controlled by just 1,000 long-term traders and holders. That removes nearly 7 million bitcoin from circulation, leaving fewer coins to be used for the purchase of goods and services. Likewise, with so many bitcoin controlled by so few people, the influence these investors could exert on the price of bitcoin is likely to keep larger merchants away.
Additionally, there are no traditional metrics that allow investors to properly value bitcoin. Sure, investors can look at processing speeds and daily transactions, but that doesn't tell us a whole lot about what bitcoin should be worth.
And lastly, it also makes little sense buying into bitcoin when its underlying blockchain is the valuable asset. Unfortunately, virtual currency investors don't gain ownership in a blockchain by purchasing digital tokens.
Feel free to call me a naysayer, but I don't foresee bitcoin coming anywhere close to these ridiculous price targets.