Bitcoin (BTC 2.97%) is the world's largest cryptocurrency. In fact, its market capitalization of $2.2 trillion accounts for more than half of the total value of all coins and tokens in circulation, which stands at $3.8 trillion as I write this.
It will cost you around $110,000 to buy a single Bitcoin right now, but in an interview earlier this year, MicroStrategy (MSTR 0.12%) co-founder Michael Saylor said the price for one coin could soar to $13 million by 2045. Then, at a conference in June, Saylor revised his price target to $21 million.
If his latest prediction proves to be accurate, investors who buy Bitcoin today could earn a staggering 18,800% return over the next 20 years or so. But is that realistic?
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Bitcoin could transform the financial system
So far, Bitcoin has failed to win over a meaningful number of consumers and businesses as a payment mechanism. Instead, most of its upside is coming from investors who consider it to be a legitimate store of value (kind of like a digital version of gold) because of its decentralized nature, its capped supply, and its secure, publicly verifiable system of record called the blockchain.
Michael Saylor thinks every asset in the world will eventually be tokenized on the blockchain, because it will create more transparency and efficiency. There is no centralized national register of real estate holdings in the U.S., for example, which is one reason buying a home involves costly legal fees and a lengthy due diligence process. In theory, placing every real estate transaction on the blockchain would eliminate some of those costs by improving transparency.
According to Saylor, Bitcoin would be the perfect reserve asset for the tokenization process because it's decentralized, meaning it can't be controlled by any person, company, or government. In his view, it could be the currency everyone uses when buying, selling, and transferring tokenized assets, so owning Bitcoin would be necessary to participate in this new global financial system.
Convincing every government in every country to create a legal framework for this vision will be challenging, but he thinks the U.S. could lead the way thanks to President Donald Trump's pro-crypto administration. Saylor thinks the world's $500 trillion in total assets could be moved onto the blockchain by 2045, driving the price of a single Bitcoin to $21 million.
That prediction faces several hurdles
If the price of a single Bitcoin rose to $21 million, the cryptocurrency's fully diluted market capitalization would be a whopping $441 trillion (based on its capped supply of 21 million coins). That would make it the world's most valuable asset by far.
Bitcoin would be worth about 105 times more than the world's largest company, Nvidia, which is valued at about $4.2 trillion. In fact, the cryptocurrency would be worth eight times more than the combined value of all 500 companies in the S&P 500 (^GSPC 0.11%), which stands at $52.5 trillion.
A valuation of $441 trillion would also be four times greater than the annual output of the entire global economy, which was $111 trillion last year.
CRYPTO: BTC
Key Data Points
As a result, I think Saylor's target is completely unrealistic. Besides, using Bitcoin as a bridging currency for tokenized assets might not increase its value at all -- since it isn't accepted as payment in grocery stores (or practically anywhere, really), people would probably convert their Bitcoin back into fiat currency after buying, selling, or transferring assets. That means there would always be a healthy supply of sellers.
Plus, it's unlikely most governments would legislate the widespread adoption of Bitcoin. Small countries typically have weaker floating-rate currencies than large countries, which helps them compete on the global stage by making their exports cheaper to foreign buyers. Adopting Bitcoin as the world's major currency would thrust developing economies like Vietnam onto the same playing field as powerhouses like the U.S., which would crush their citizens' living standards.
Bitcoin can still move higher, but maybe not as high as Saylor thinks
Saylor's company, MicroStrategy (now known as Strategy), owns 636,505 Bitcoin worth $71 billion, so he has a major incentive to continue making bullish predictions. But Bitcoin might still be a buy, even if you don't believe his predictions will ever come true.
As I mentioned earlier, a growing number of investors consider Bitcoin to be a legitimate store of value, and gold might be the most comparable asset. The total value of all above-ground gold reserves is about $24.4 trillion, and if Bitcoin's market cap were to match that, it would translate to a price-per-coin of $1,160,000 that would yield investors a 945% return from today's prices.
That might be a more realistic target, but it's important to remember that Bitcoin is a speculative asset. It doesn't produce any revenue or earnings, so its value is determined by what the next person is willing to pay, which is difficult to predict.
