Michael Saylor, a high-profile Bitcoin (BTC 1.20%) bull, is at it again: He just put out a $500,000 price target for Bitcoin. Speaking recently at MarketWatch's Best New Ideas in Money Festival, Saylor suggested that Bitcoin could hit $65,000 within four years. From there, it's to the moon. He thinks the digital currency could be valued at $500,000 within the next decade.
Of course, investors need to take Saylor's prediction with a pinch of salt as it's likely biased, considering how much of his own wealth is tied up in Bitcoin and how much his company MicroStrategy (MSTR 1.89%) has invested in the token. But it's worth asking anyway: Is a $500,000 price target really all that outrageous for Bitcoin?
Bitcoin's market capitalization
To put the $500,000 price target into context, it's important to know that the maximum supply of Bitcoin ever will be 21 million coins. Satoshi Nakamoto, the pseudonym for the creator of Bitcoin, decided that there can never be more than 21 million bitcoin in existence. So it's a fairly easy to calculate how different Bitcoin price targets can lead to different implied market capitalizations.
A price target of $500,000 implies a total Bitcoin market cap of $10.5 trillion. The total market cap of the cryptocurrency right now is approximately $360 billion.
Image source: Getty Images.
According to Saylor, his Bitcoin price target is based on the current total market value of gold, which is approximately $10.5 trillion. This value can be obtained by multiplying the current spot price of gold ($1,650 per ounce) by the amount of the world's above-ground gold reserves. At the start of 2022, these gold reserves were estimated to be around 205,238 metric tons, according to the World Gold Council.
So Saylor is basically saying that Bitcoin will one day have the same market cap as gold has today. He thinks this is realistic because the cryptocurrency is "digital gold." From his perspective, the token acts just like gold as a hedge against inflation and as a long-term store of value. Even if you believe this, you have to admit that a lot would have to go right for Bitcoin in order for it to match gold's current market valuation.
Bitcoin price targets
That being said, a lot of very smart investors have put out some equally outlandish Bitcoin price targets in the past. Venture capitalist Tim Draper, for example, predicted that Bitcoin would hit $250,000 by 2022. Software CEO John McAfee had once predicted that Bitcoin would hit $1 million by 2020. Most recently, ARK Invest's Cathie Wood predicted that it would hit $1 million by 2030. So putting all this into context, Saylor's price target is not the most outrageous, after all.
The most outrageous price target ever?
Wall Street is known for coming up with some wild valuation targets. During the first internet boom, analysts rushed to put out higher and higher price targets for internet stocks. None of these stocks could be valued using conventional metrics, and that led to some pretty crazy valuation models. Valuation became more of an art than a science.
CRYPTO: BTC
Key Data Points
The price target that generally was regarded as one of the craziest ever at the time was the $400 prediction that Wall Street analyst Henry Blodget made for Amazon (AMZN +1.63%) back in 1998 when it was trading at $240. Back then, few foresaw that Amazon would become the juggernaut that it is today. Blodget was laughed at, called reckless and irresponsible, and mocked. Within three weeks, though, Amazon had blown through the $400 barrier. The rest, as they say, is history.
Will Bitcoin ever hit $500,000?
Quick back-of-the-envelope calculations make it almost inconceivable that Bitcoin could ever go to $500,000. It would require a great reset of the global economy, the rise of Bitcoin as the world's reserve currency, and the replacement of physical gold with digital gold.
Strange things have happened, though. Just ask Blodget. He has been completely vindicated as Amazon has become one of the most dominant companies in the world, with a total market capitalization of over $1 trillion. And guess what: In 2017, Blodget suggested that a $1 million price target for Bitcoin -- back when it was trading for just $2,000 -- was not so crazy after all.
