Bitcoin (BTC -0.90%) has been a winning investment this year, with its price up almost 60% in 2023 (as of Sept. 15). Interest from investors is growing after a tumultuous 2022 that saw digital asset prices tank as major businesses in the industry blew up. But it might be a good idea to set your eyes on a new price target, even after the huge gain this year.
In November 2021, Bitcoin hit an all-time high of nearly $69,000. And while it's 62% off that peak right now, I believe that the world's top cryptocurrency can reach $100,000 within the next five years. By looking at the quantitative and qualitative factors, I think other investors would tend to agree with this forecast.
Running the numbers
As of this writing, Bitcoin's price is roughly $26,000, and its market cap is just over $500 billion. To keep the calculation nice and simple, if the crypto hits $100,000, it would translate to a gain of 300% in the next five years, good for an annualized increase of 32%. That return would surely crush the rise of the S&P 500 or the Nasdaq Composite, but it would match Bitcoin's trailing-five-year return.
In five years, Bitcoin's market cap would total $2 trillion. That might seem like a lot, but consider that the total value of all the gold on Earth is about $12.5 trillion. As Bitcoin becomes a more legitimized and widely accepted store of value, it should steadily creep up on the total market cap of the popular precious metal. But even in our scenario, Bitcoin would only be worth 16% of gold, a penetration rate that might seem conservative to some bulls.
At a roughly $2 trillion market cap, Bitcoin would still be less valuable than Apple, which is currently worth $2.7 trillion, and Microsoft, with a value of $2.5 trillion. So while a $100,000 price target might seem like a lofty expectation at first glance, it still leaves Bitcoin trailing some of the most successful businesses of all time, a completely reasonable outlook.
Why should demand rise?
Those calculations make sense and aren't a stretch of the imagination to believe, but the ultimate question remains why more individuals, institutions, or governments would even want to own Bitcoin in greater quantities in the years ahead. It's illuminating to focus on this asset's qualitative characteristics.
According to bitinfocharts.com, Bitcoin can only process less than six transactions per second (TPS). This pales in comparison to Visa, the card payments giant, which can theoretically handle 65,000 TPS. Consequently, Bitcoin hasn't shown much promise as a medium of exchange in day-to-day payments. In fact, in developed countries, the existing payments infrastructure works pretty well.
However, I believe that Bitcoin's key thesis centers on more parties using it to store their wealth. From a basic supply-and-demand perspective, owning an asset of which there will only ever be 21 million coins seems like a smart decision. As demand rises combined with a fixed supply cap, the price is set to continue climbing higher over time, even though it won't be a smooth ride.
Besides the promise of huge financial returns, Bitcoin can be a worthy store of value when compared to fiat currency. Government-backed money has been devalued over the past century thanks to enormous amounts of money creation, particularly in the past decade or so. This has resulted in the U.S., a country viewed as the world's economic powerhouse, having a whopping $33 trillion in debt outstanding, a figure that has expanded over time and that doesn't include underfunded liabilities like Medicare and Social Security.
I think more market participants, whether individual or institutional investors, corporations, or even governments, are starting to look at Bitcoin as a hedge against something breaking with the traditional financial and monetary system. As more learn about this cryptocurrency, it's not crazy to believe that its price should approach the $100,000 mark. I wouldn't be surprised to see this milestone reached by the end of 2028.
