Bitcoin (BTC -1.26%), the world's most valuable cryptocurrency, was worth $729 billion as of Jan. 31, but it hasn't been immune to the whims of the broader market. Digital assets have taken a hit in recent months, with Bitcoin falling 44% since early November. The Federal Reserve plans to hike interest rates this year, leading investors to transition away from these higher-risk assets. 

It has certainly attracted its fair share of both skeptics and believers, but can Bitcoin reach a market cap of $10 trillion by 2030? I don't think it's out of the realm of possibility. Let's analyze some scenarios that could make this happen, as well as a big risk factor. 

Analyzing Bitcoin price chart on laptop.

Image source: Getty Images.

Bitcoin becomes a replacement for gold 

Ever since it launched in 2009, Bitcoin's most promising real-world use has been to become a digital version of gold. Although gold does have some utility, primarily in electronics, it is viewed by investors mainly as a store of value. The total value of gold that has been mined stands at more than $9 trillion. 

But specific properties arguably make Bitcoin a better asset than the precious metal. It is absolutely finite, with a hard-coded supply cap of 21 million coins. Changing this cap would require a so-called hard fork, creating a tweaked clone of Bitcoin with the desired new property -- but Bitcoin itself would remain the same. Plus, it's divisible, can be used in transactions, and is portable. And Bitcoin's hope to bring economic freedom to the world could open up its ownership base to essentially anyone who has an internet connection, supporting a higher price. 

This means that if it were viewed purely as a store of value, Bitcoin could eventually reach $10 trillion thanks to greater adoption. 

Bitcoin attracts capital from negative-yielding debt 

The scenario I'm about to discuss is probably not as likely to happen as replacing gold, but it gives Bitcoin proponents another valid argument for why the top cryptocurrency deserves a higher value. 

The amount of negative-yielding debt worldwide is approximately $10 trillion. This means that investors are deliberately choosing to invest their savings into financial products that result in decreased purchasing power. If this sounds insane to you, you're not wrong. 

For some reason, it's completely prudent for institutions to allocate capital to fixed-income securities that are certain to lose value. But owning Bitcoin, undoubtedly still a speculative asset, is viewed as extremely risky, even though it has proved to be a winning investment with strong returns over the years, temporary setbacks notwithstanding. 

Over time, it might be viewed as imprudent not to own any Bitcoin, a necessary ingredient for price appreciation. 

Bitcoin's biggest risk 

Of course, any hypothesis about Bitcoin eclipsing $10 trillion must acknowledge the 800-pound gorilla in the room: the possibility of governments banning it. 

Last year, China made it illegal to transact in, mine, or hold cryptocurrencies. And it's not alone, as there are eight other countries that have effectively banned digital assets. This makes sense since Bitcoin undermines a government's ability to control its money supply. But a country that eliminates cryptocurrencies within its borders is risking missing out on greater opportunities in terms of innovation and wealth creation. 

Alleviating concerns here in the U.S., both Fed chairman Jerome Powell and Securities and Exchange Commission chairman Gary Gensler stated that they don't intend to ban cryptocurrencies. But this month, the White House is expected to issue an executive order giving regulatory oversight to various federal agencies. While it might seem like a crackdown, I think this development will ultimately benefit the entire crypto ecosystem by adding much-needed clarity regarding the government's stance. 

Let's put things in perspective 

Over the past five years, Bitcoin has gained 3,800%. If its market value were to hit $10 trillion by 2030, that's roughly a 1,200% return over the next eight to nine years. Compared to Bitcoin's historical performance, this is a sharp slowdown. 

Bitcoin would need to become recognized as a legitimate store of value in the eyes of the investment community in order to reach the $10 trillion mark. Reducing friction for this is a growing suite of financial infrastructure, connecting the traditional financial system to the crypto economy.  

We haven't even touched on the potential for Bitcoin to actually achieve status as a medium of exchange, which would definitely push it to greater heights. Nations can follow El Salvador's path by making it legal tender. Additionally, Bitcoin can penetrate the $700 billion global market for remittances, an expensive and slow financial transaction system of border-crossing transactions that is ripe for disruption. If it can make progress toward these use cases, it's not hard to believe that Bitcoin can hit $10 trillion by 2030. 

If you haven't already, I think it would be smart to allocate 1% of a well-diversified portfolio to this top cryptocurrency.