There will only ever be 21 million Bitcoin (BTC 0.44%) in existence, and most already are in circulation. Many investors are aware of this fact, and this capped supply is certainly one of the key factors behind Bitcoin's long-standing success.
CRYPTO: BTC
Key Data Points
Michael Saylor, executive chairman of Strategy (MSTR 0.04%), believes that each individual Bitcoin could be worth $21 million by 2046. That's a pretty optimistic prediction and one that left some folks laughing, others shocked, and me personally smiling.
NASDAQ: MSTR
Key Data Points
Anything's possible. Bitcoin has proven that. But at $21 million per coin, we're talking an overall market capitalization of $441 trillion for the cryptocurrency. For context, the entire U.S. stock market (the value of all publicly traded companies) stood at $63.8 trillion as of July. This would imply Bitcoin could be worth roughly seven-times the current value of every company in the world's biggest economy in 20 years.
Let's dive into this astronomical price prediction to see whether it's even possible for Bitcoin to hit these levels and whether Bitcoin still makes sense as an investment for the average retail investor.
Source: Getty Images.
From niche asset to a systemically important store of value
Saylor's view of Bitcoin hitting $21 million per token appears to rely on a central thesis: Governments, individuals, companies and the entire economy will rely on Bitcoin as not only a store of value but the dominant means of payments within the next two decades.
The idea is that as more capital changes hands on Bitcoin's blockchain, and more central banks, financial institutions, hedge funds, and other outfits buy Bitcoin to support the value of their balance sheets, this rising demand will lead to continuously compounding returns.
In fact, this price target would equate to a compounded annual return of roughly 21%. In Saylor's words, "And people ask, how's the network going to grow? It's going to be growing at 21% in 21 years. The volatility is going to be 21. The only number you need to remember is the number 21."
That 21% is roughly double the expected long-run return of equities and more when we look at other alternative assets and fixed-income securities.
The bull case: Global wealth will grow and flow to Bitcoin
Some define currency as a liquid form of value exchange. It's the liquidity part that is interesting to me. I've heard many financial experts suggest that capital is liquid in the sense that it flows down the path of least resistance to the asset class with the highest returns.
Indeed, the bull case behind Bitcoin hitting such a valuation is that although this asset currently makes up roughly 0.2% of global wealth (around 0.1% when Saylor released his keynote), if adoption really picks up, he sees this percentage increasing significantly.
There have been surging prices in gold, precious metals, and other stores of value outside the monetary system. But in Saylor's view, Bitcoin is the "most liquid, fungible, free capital market in the world." No governments, no regulators, no armies can take it down. And if central banks do destroy the monetary system as we know it (hard to tell if Saylor is a true "doomer" or not), maybe there's something to this thesis.
The bear case: Such a shift will be difficult, if not impossible
There are reasons so many are skeptical about Bitcoin and crypto in general.
Much like fine wines, art, collectibles, and other assets that are hard to value, the value of digital assets really is in the eye of the beholder. Without underlying fundamentals such as earnings or cash flows (in the same way as companies generate), the value of a given token really depends on what another investor thinks it's worth. So, to an extent, the greater fool theory is at play for investors who plan on selling their tokens at a higher price.
Still, projects like Bitcoin have seen rapid adoption, and there's a strong argument that more investors will want to keep a greater percentage of their wealth outside the system, given the rising risks in the monetary and fiscal policy arenas.
The question is whether investors will choose Bitcoin en masse over assets like gold, real estate, and other more traditional stores of value. Hard to say. I'm cautious, if not skeptical, and I'm sure most readers are as well. The $21 million forecast is a sky-high price target, and it's going to be hard to hit. But given how far Bitcoin has come, some have to think: "Why not?"
