It may sound strange or even silly to ask this now, in the midst of a long and painful crypto winter, but it's still a fair question.
Can Bitcoin ever reach the incredible price of $5 million per coin?
This is, of course, a question with a long and complex answer. Read on to see my detailed analysis. But the short answer is pretty simple: "Maybe, but not anytime soon."
What will it take to raise Bitcoin's price that high?
Right now, Bitcoin prices are hovering around the $27,000 mark. The $5 million price target stands more than 18,000% away.
That's a long way off.
Moreover, there are about 19.4 million Bitcoin tokens in circulation so far, out of a possible maximum of 21 million. If you multiply $5 million by 19.4 million, you get $97 trillion. By comparison, all the gold in the world is currently worth about $10 trillion. The U.S. gross domestic product reached a record high of $25 trillion last year, as part of a $104 trillion global economy.
The value of all cash and consumer-grade cash equivalents such as checking and savings accounts adds up to roughly $83 trillion . The only monetary figure that makes $100 trillion look small is the $300 trillion of global debt, including every country's national debt.
In other words, Bitcoin would need to become the de facto currency of record for a dominant chunk of the global economy. I'm talking about an economic revolution on a worldwide scale, probably involving political unrest and maybe even wars along the way.
Image source: Getty Images.
What stands in the way?
Existing economic forces are putting up an active fight against Bitcoin and other crypto names. Nobody steals this massive lunch on a whim.
There is nothing wrong with that resistance. Central banks and regulators are responsible for the financial health of every citizen, corporation, and government agency. It makes sense to defend the status quo, even if cryptocurrencies might offer real advantages over gold-based or fiat currencies. At the very least, these economic gatekeepers must manage the transition from one monetary system to another in an orderly fashion. A crypto revolution that triggers economic crises around the world is not a pleasant idea, even for the most bullish cryptocurrency enthusiasts.
On a more practical level, there is no simple way to drop in Bitcoin as the replacement for every currency on the planet. Keep in mind that not even the most influential currencies, like the dollar or the euro, are legal tender in more than a handful of countries today. Standardizing everyone on a single monetary platform looks impossible.
And Bitcoin's blockchain network is not set up to handle a worldwide system of payments and financial transactions. Layer 2 solutions like the Lightning Network can increase transaction processing speed to some degree, and the actual Bitcoin platform is always under active development, but the currency can only handle approximately seven transactions per second right now. That's nowhere near enough to support a worldwide economy with billions of Bitcoin users.
How long could it take to get there?
So there is no quick and easy way from $27,000 to $5 million per Bitcoin, but there may be some tricky backroads into that territory.
The oldest and largest cryptocurrency has gained 29% against the inflation-stricken U.S. dollar over the last year. It rose 180% in three years and has quadrupled since June 2018. Drop back to the summer of 2015, and the gain balloons to 10,500%.
If Bitcoin maintains its compound average growth rate (CAGR) from the last eight years, it could reach $5 million per coin in another nine years. That's a highly unlikely scenario, though. It is much easier to score enormous annual gains when you're starting from a smaller financial platform and a lower price, like the $248 price tag and $3.5 billion market cap Bitcoin sported in June 2015.
Let's say the CAGR slows down to a (still fairly improbable) 35% instead. At that speed, it would take roughly 18 years to hit $5 million. And if I may remind you, the end of that rainbow is Bitcoin as the only currency on Earth that matters in any practical sense.
The calculation changes a little bit if you also account for inflation. Bitcoin is largely immune to that effect due to its lifetime cap of 21 million coins, only leaving room for an 8% increase in the token count over the next hundred years or so.
The dollar is not immune to inflation. Monetary policymakers generally aim for an annual inflation rate of roughly 2%, with the occasional dip or spike. Eighteen years from now, that effect would boost the effective dollar value of Bitcoin by approximately 40%. So if you're looking for a cash value of $5 million in 2041, that amounts to a $3.5 million price tag in 2023 dollars. In other words, Bitcoin could take over just half of the global money supply and reach $5 million per coin -- as long as we are looking at inflation-adjusted dollar values.
To be fair, Bitcoin could also hit that $5 million mark quickly if America experiences actual hyperinflation in the next decade or two. Fairly recent examples of hyperinflation include Yugoslavia in the 1990s, Zimbabwe in 2016, and the current crisis in Venezuela. Mirroring any of these examples would be enough to make Bitcoin worth $5 million or more -- but you'd also spend millions of hyperinflated dollars on everyday necessities like bread and eggs. Yes, Bitcoin's immunity to inflation is a major selling point for the cryptocurrency, but nobody wants or expects this ultragloomy future. In reality, this is not happening.
Bitcoin can go up, but $5 million is an unreasonable goal
So Bitcoin could perhaps be worth $5 billion per coin, but only if you are ready to wait two decades for an unrealistically optimistic scenario to play out, or adjusting a still-lengthy return period for dollar-based inflation. You're better off setting lower price targets and more modest expectations for Bitcoin, even in the long run.
To be clear, I expect Bitcoin to gain value over time, serving as a solid hedge against inflation. Just keep an eye out for signs of wider Bitcoin adoption, clearer cryptocurrency regulation, and technical upgrades to the underlying blockchain system. We Fools will keep you posted.
