Just a few hours ago, CNN wrote an incredible story: Bitcoin (CCC:BTC-USD) exceeded the psychological threshold of USD 20,000. Typically, this is the time a traded asset depreciates in value when investors head to the exits and are scared of holding their pockets. But not this time.
No, in this case people are eager to hold the bag and some more. When the sun breaks over the horizon and the financial news media wakes up, it will likely do so at a Bitcoin price of over $ 23,000. But whatever the case, the most important thing to take away is that the cat is out of the bag.
If you’ve been thinking about cryptocurrencies but have been too hesitant to jump on board, I’m not sure what to tell you. Yes, at some point the virtual currency market will cool down. But by the time there is a lengthy correction – and I use “extended” in crypto standards – the sector will likely have broken astonishing ratings.
But how high can Bitcoin go? As you’ve probably seen, watchers have thrown all sorts of crazy numbers. In general, the six-digit threshold seems a reasonable target, given that it’s a 334% move as a percentage – a rate of performance that’s not uncommon for high-growth technology stocks.
Personally, I think Bitcoin will hit $ 40,000, less than double at the time of writing. At this point, that prediction seems like a foregone conclusion. But the estimate that really keeps my blood going is Bitcoin a million.
That’s right, $ 1 million. As you know, it is the most expensive stock in the world Berkshire Hathaway (NYSE:BRK.A). Its shares are currently trading at $ 338,500. Should Bitcoin be in seven digits, the blockchain token BRK.A would almost triple.
Of course this is nonsense … or is it?
Why Bitcoin One Million Isn’t Quite Science Fiction
Now I want to make one thing clear before you try to institutionalize me. I am not suggesting that Bitcoin will hit this fantastic figure. Surely many factors have to be favorable for virtual currencies to get to this point. However, I want to say that the concept is not entirely unreasonable.
First, some high profile people stretched their necks to make that statement. Above all, Raoul Pal, the former hedge fund manager at Goldman Sachs, stated in an interview with Stansberry Research that “an enormous wall of money” could flow into the cryptocurrency. Additionally, Pal believes Bitcoin could hit seven-digit numbers in this wave in five years.
We have all seen what virtual currencies can do now. It would therefore not be correct to immediately reject unusual forecasts. But I’m sure you’ll agree there is a huge difference between $ 100,000 BTC and $ 1,000,000.
However, if we analyze the BTC chart on a logarithmic scale, with the emphasis on the extent of change rather than nominal price changes, the momentum in support of much higher prices does not seem inadequate. Instead of an asset shooting straight to the moon after years of sideways trading, we are seeing a gradual development followed by a corrective phase.
Crucially, in the period from September 2014 until now (approximately 6.33 years), BTC grew at an average annual growth rate (CAGR) of just over 88%. If you apply the same CAGR of 88% over the next 6.33 year period, you get a price of $ 1.17 million in spring 2027.
Obviously, history is not guaranteed to repeat itself, so this CAGR exercise could become worthless. What we haven’t touched on yet, however, is the fundamental backdrop, which is shockingly optimistic about Bitcoin and the entire cryptocurrency complex.
The plot thickens
For years we have been inundated with stories that millennials are falling behind financially. For example, this Wall Street Journal report last year revealed that Americans in this demo “are in worse financial shape than any previous living generation and may never recover.”
I agree with the former, but not so much with the latter.
You see, most people forget that the massive wealth the baby boomers have amassed has to go somewhere. You can’t take it with you. Nobody can. And the natural choice of where that wealth will ultimately be transferred is their offspring.
As I mentioned in previous articles, by the end of the so-called Roaring 2020s, Millennials will be five times more wealthy than they are today. Therefore, the “future demand for Bitcoin and Altcoins is fundamentally guaranteed, simply by transferring wealth to the younger generation”.
Because let’s be honest – young people are less interested in stocks, bonds and real estate. For many of them, virtual currencies reflect the independence and decoupling from traditional hierarchies (think the gig economy) for which they are best known. Soon they will have the ability to grant their wishes.
Will that be enough to raise Bitcoin to $ 1 million? I dont know. But right now, Bitcoin $ 40,000 looks incredibly forward-looking.
At the time of this writing, Matthew McCall held positions (neither directly nor indirectly) in the securities identified in this article.
At the time of writing, the InvestorPlace Research associate primarily responsible for this article was long in Bitcoin.