There haven't been many investment success stories throughout history that can hold a candle to Bitcoin (BTC +0.80%).
The world's original cryptocurrency, still the largest today, was launched in 2009 and has appreciated by over 20,000% since 2014. One of Bitcoin's most prominent backers and holders believes that its story still has plenty of chapters ahead.
Michael Saylor, executive chairman of Bitcoin treasury company Strategy, recently predicted that Bitcoin's price will reach approximately $21 million over the next 21 years. That would indicate an upside of 17,696% from the price as I write this of $118,000.
Strategy holds Bitcoin as its primary reserve asset. As of July 31, it said it owned 628,791 Bitcoins, 3% of the Bitcoins ever to be in existence.
Saylor is obviously a Bitcoin fan and will benefit if it surges. While such large numbers can seem irrational at first glance, Saylor's prediction deserves a look. How likely is a more than 17,000% jump, and should investors buy Bitcoin right now?
Image source: Getty Images.
Michael Saylor's price target could be a little on the ambitious side
Nobody knows what the world will look like in 21 years, much less what Bitcoin's price will be. The world has entered an age of unprecedented technological innovation, with artificial intelligence hitting its stride.
But if you use some rough numbers to do some math, it looks like Saylor's prediction is too bold. For starters, Bitcoin's fully diluted value (Bitcoins in existence multiplied by value per coin) is currently $2.44 trillion. Increasing Bitcoin's market price by 10,000%, a 100-fold increase, would mean that its fully diluted value would soar to somewhere around $250 trillion. Some of that would come from more Bitcoins being mined and some from a price increase.
The global money supply among the world's major central banks is about $95 trillion. It was approximately $23 trillion two decades ago. If it increased roughly the same amount over the next 20 years (quadruple) to about $380 trillion, you would be looking at a scenario where Bitcoin would be worth 65% of all the fiat money of the world's leading economies in my math from above.
That just doesn't seem realistic, especially considering the U.S. dollar is the world's reserve currency, which carries massive implications throughout the global financial system. Plus, gold is worth a fraction of the money supply at an estimated $22.68 trillion today, and there's no apparent reason why that ratio would change for another alternative asset like Bitcoin. I find such a huge jump in Bitcoin's value impossible, but improbable.
Why Bitcoin could continue to head higher
But even if Bitcoin doesn't reach Saylor's price target, that doesn't mean he's wrong about the direction. Bitcoin continues to gain value as society embraces it as an anti-inflationary asset like precious metals or real estate, meaning its dollar-based value increases as the buying power of fiat currency erodes. Many investors see Bitcoin as a digital version of gold.
Bitcoin's momentum has led to increased institutional and government acknowledgement in recent years. For example:
- Some companies have begun to hold Bitcoin on their balance sheets.
- Institutional investors have launched Bitcoin-backed investment funds.
- The United States has said it will create a strategic Bitcoin reserve.
The United States and several other developed countries also continue to operate in fiscal deficits. Deficit spending expands the money supply, and if the demand for goods and services doesn't grow fast enough to keep pace with that, inflation occurs. When you add it all together, it seems likely that the multidecade trend of the U.S. dollar's buying power diminishing will continue, driving Bitcoin's price higher over time.
CRYPTO: BTC
Key Data Points
The smart way to invest in Bitcoin
Bitcoin has run to new highs on enthusiasm, partly around the U.S. government's strategic Bitcoin reserve and the recent passing of the Genius Act, aimed at establishing a framework for stablecoins, a step forward for the broader adoption of digital currencies and assets. However, Bitcoin's price has dropped 30% to 60% or more many times over the years, and it will likely happen again at some point.
Given Bitcoin's volatile nature, I've always thought a dollar-cost averaging strategy was the best way for investors to approach buying the cryptocurrency. If you add a set amount at set time periods regardless of other factors, you should make out well in the end, as long as its value continues to trend higher. Bitcoin is still a relatively new asset, but its past performance and sustained long-term tailwinds make it a great addition to any diversified long-term investment strategy, but make sure you're diversifying your portfolio and balancing crypto's risk with solid stocks and other investments.
