Bitcoin has come a long way in the last decade. It has gained a foothold on the internet and the Blockchain technology behind it has led to the creation of many other coins. The history of Bitcoin itself has been very rocky, as would be expected with a new disruptive technology, however unlike any other new technology, bitcoin is bought and sold instantly on the internet and used as a payment method or a store of value. This has meant that every setback and every victory is quickly reflected in the price causing unprecedented volatility. But in the end where is the price headed?
The volatile price of Bitcoin
Calling it a meteoric rise would be an understatement as the value of the coin went from being worth pennies to $20k USD at its peak in 2017, and now back down hovering between 9-10k USD. There are probably more than a few people in the world, who are now millionaires because they found some “change” in old wallets that had been forgotten between some digital sofa cushions.
Throughout its history, violent 70-80% price drops and exhilarating exponential 2000% pumps have been a regular occurrence.
However, all the while, Bitcoin’s fundamental properties and the value derived from it hasn’t changed. A trust-less, non-duplicatable payment system is a very valuable thing. As a result, despite the volatility, the overall price trend has always been upward. Everyday more people and businesses are joining the Bitcoin revolution, than are leaving it. Its simple natural selection, as Bitcoin does what money does, but better. You can track the price yourself at one of our favourite exchanges Kraken
Where is Bitcoin’s price headed?
It’s difficult to price Bitcoins future. I will go over some of the reasons for this difficulty in the future but first lets have a look at some of the estimates that others have frequently made, and the reasons behind them.
Gold 2.0
The Winklewoss twins who are early investors in Bitcoin, have stated this leading theory that Bitcoin will begin to replace gold as a store of value. Gold is a universal store of value that investors typically turn to in times of global economic uncertainty and financial turmoil.
“Our thesis is that Bitcoin is gold 2.0 and so until it has a market cap of $7 trillion, which is the size of gold, it's a very undervalued asset. So I think people are just waking up to that. People get more comfortable with Bitcoin when they keep hearing gold 2.0, it's a store of value, its characteristics are better than gold, and also the longer it is here, it is harder to call it a fad, and it's more here to say. So I think it just builds confidence and trust.”
If Bitcoin hits a market cap of $7trillion as the Winklevoss twins predict, the price per Bitcoin will surpass $333,000. Even taking 15% could take the price of a bitcoin to over $38,000.
This prediction focuses on the utility of Bitcoin as a store of wealth, and the fact that it is not tied to any particular country’s economy. The theory is valid, and bases the value on Bitcoin taking market share from something that currently has value. In this instance, gold as a store of value. Similar predictions use the value of the payment processing market as it is significantly cheaper to accept Bitcoin payments than credit card payments
However, Bitcoin also dropped alongside the recent stock market crash prompted by the global Covid19 pandemic, and had it been a true store of value and hedge against the stock market, should never have happened. It did quickly recover to previous levels, which once again highlights its volatile nature.
Regardless, valuing bitcoin by taking market share from current use cases is probably the most conservative and sensible method of pricing it.
Logarithmic charts
Another frequent method to calculate the future of bitcoins price is using chart analysis just as forex traders do. This time using Log charts to show a much less radical looking trend, as the exponential growth is visually smoothed into a linear or a square root trend. Cycles of growth are highlighted with the next peak anywhere from $100,000 as in the image below, (which was created in Jun2018 and accurately predicted the drop in early 2019 and subsequent recovery on schedule as of Jun2020) to $400,000, and eventually reaching $1-2m by 2030
This method looks at the past prices and sees a pattern, repeated 3 times so far. Similar charts have been posted as far back as 2014 when only 2 cycles had completed. Different charts focus on different things such as bitcoin halving periods, Fibonacci retracements and target prices but all use the similar log chart to map the rise of prices. For the most part they have been surprisingly accurate, even when they seemed impossibly bullish at the time. However, as it is often stated in financial spaces, past performance is not necessarily an indicator of future returns.
Simple Mathematics
Currently the smallest unit of usable currency used in the USA, is the cent. The smallest unit of bitcoin is the satoshi (aka a bit) which is a hundredth of a millionth bitcoin (1 satoshi = 0.00000001 BTC). If bitcoin is to directly replace the dollar in its usability, then 1 satoshi should equal 1 cent and hence 1 bitcoin should equal $1m USD. This is the simplest valuation and there are many issues with it such as the fact it doesn’t take into account other currencies around the world, but it also might be the best. Not because the $1m USD figure is the most accurate but because, despite the comparison with the USD, it inadvertently values bitcoin with itself.
Asking the price is the wrong question
While it is a frequently asked question, “What will bitcoin be worth?” is perhaps, the wrong question to ask. When people ask this question, they want to know how many USD, or Euro for example, they will be able to exchange for a bitcoin, in the same way as if it were a company stock or a loaf of bread. The problem is that Bitcoin, is a replacement for their current currency.
Outside of economists, regular people don’t ask how much is a dollar worth? Or how much is a Euro worth? This question would confuse a man on the street, since a dollar is worth a dollar, he might say its worth 100 cents if pushed but he wouldn’t compare it to another unit of measurement. Similarly, once Bitcoin arrives in the mainstream, it will be compared to itself, and one bitcoin will be worth one bitcoin.
1 bitcoin will be worth 1 bitcoin
Even if the exchange rate with the USD was 1BTC = 1m USD, this doesn’t express how much a bitcoin is worth since we don’t know the value of the dollar in the future. The Zimbabwe hyperinflation showed that 1 British pound was worth more than one million Zimbabwe dollars, but that didn’t mean that those who had pounds were now mega-rich. If bitcoin does succeed in taking market share from fiat currencies, not only will the value of bitcoin increase but the value of those fiat currencies will decrease.
When talking about the price of bitcoin, we are talking about the equivalent value. Bitcoin might reach an exchange rate of 10m USD to 1 BTC but it may have the equivalent value of currently having 500k USD. Thus, allowing me to buy with my 1BTC, what I can now buy with 500k USD.
So, a slightly more sensible question would then be “what can I buy with 1 bitcoin?”. Will 1 bitcoin afford you your weekly groceries, or will it buy you a mega yacht and a matching lambo? It will be interesting to find out. If you want to get on board with Bitcoin you can use our recommended cryptocurrency exchange, Binance or try another of our favourite exchanges Kraken
