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Follow bitcoin long enough and it becomes clear that one of the traits of this asset is that it draws outlandish price targets at a pace not seen with any other mainstream investable security.
Currently, there’s a vocal chorus of bitcoin bulls who believe bitcoin bear markets are a thing of a past and that it’s just a matter of time (measured in years) before the larges cryptocurrency ascends to $1 million. Taking some liberties with the rounding, that means bitcoin would need to roughly surge 10x from where it traded late Thursday, resulting in a market capitalization of $21 trillion. Putting $21 trillion into context, that’s approximately the COMBINED GDPs of the world’s third- through eighth-largest economies.
Yes, it’s possible that bitcoin will one day sport a $1 million price tag. It’s also likely to take awhile to get there, so in the essence of practicality, investors should focus on more realistic price forecasts, such as a double from current levels. That would take bitcoin to a market value of $4.2 trillion, or well ahead of the $3.55 trillion market cap of Microsoft (NASDAQ: MSFT), the largest U.S. company.
Bitcoin Undervalued? Maybe.
A broad swath of investors, even some of bitcoin’s most ardent supporters, aren’t likely to associate the digital currency as being a value asset, but as is the case with say gold, there are occasions when bitcoin can be over or undervalued.
Citing bitcoin’s potential as a buffer against sovereign debt defaults, Bitwise Asset Management makes a case for the cryptocurrency being undervalued, by a wide margin at that, today.
“Quantitative models estimate bitcoin's hypothetical ‘fair value; amid the current sovereign default probabilities at around 230k USD today. This estimation is dovetailed by bitcoin's increasing scarcity which also points to an ascend towards 200k USD by the end of the year,” notes the money manager and ETF issuer.
Focusing on the $200,000 prediction because it’s the lower of the two aforementioned numbers, getting there by the end of this year requires bitcoin to nearly double in just six-and-a-half months. At late June 12 prices, bitcoin is 277 days into its most recent doubling, according to Newhedge data. There have been plenty of instances when the cryptocurrency took longer to double and some doublings that occurred in much shorter timeframes. For example, it doubled in the span of just 16 days December 2017, but that was at much lower prices than are seen today.
Big, Beautiful Catalyst for Bitcoin
As has been widely lamented, the fiscal position of the U.S. is precarious and some budget experts argue President Trump’s big, beautiful bill worsens that situation. At a minimum, the legislation doesn’t go far enough regarding spending cuts.
As noted earlier, sovereign debt defaults could boost the allure and while that ominous scenario isn’t likely in this country, Congress’s inability to rein in spending is reason to consider bitcoin as well.
“We also expect that the US fiscal debt situation will most likely continue to deteriorate over the coming years which is also the official projection by the Congressional Budget Office (CBO): Net interest expenses will likely triple towards the end of this decade already – from ~$1 trillion to ~$3 trillion by the year 2030,” adds Bitwise. “Non-discretionary government outlays – i.e. those that are mandatory and required by law - such as interest expenses, social security, unemployment insurance etc. already exceed 100% of fiscal revenues. The proposed tax cuts by the Trump administration will likely exacerbate this situation.”
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