Bitwise: Why Bitcoin Is Destined to Impact a Million Dollars?

Original Article Title: How Bitcoin Gets to $1 Million

Original Article Author: Matt Hougan, Chief Investment Officer at Bitwise

Original Article Translation: Saoirse, Foresight News

A few days ago, a financial advisor asked me: “Matt, do you really think a single Bitcoin could be worth $1 million? That number sounds too outrageous.”

I understand his perspective. $1 million does indeed sound absurd. It would mean Bitcoin has to increase by another 14x from its current price.

When I entered the crypto industry full-time in 2018, hearing things like this would just make me laugh. Back then, Bitcoin was around $4,000, and the $1 million target — even for me — seemed utterly ludicrous.

But I don't think that anymore. As I delved deeper into this asset, I realized that I, like my financial advisor friend, made a very fundamental error in analyzing Bitcoin's potential.

In this week's memo, I want to explain this error and show how, based on a set of rather conservative assumptions, Bitcoin could reach $1 million.

Estimating Bitcoin's Value

I view Bitcoin as an emerging store of value asset. Its role is similar to that of gold — allowing individuals to hold wealth outside the traditional fiat and banking systems, just in digital form. It is more volatile than gold, with a shorter history, but is vying for the same market.

Within this framework, the basic logic of estimating its value is quite simple:

· Estimate the total size of the store of value market;

· Estimate the share of that market Bitcoin could capture;

· Divide by 21 million (Bitcoin's maximum total supply).

This gives you its implied price.

Today, the size of the store of value market is close to $38 trillion:

· Gold: $36 trillion

· Bitcoin: $1.4 trillion

By this measure, Bitcoin currently holds less than a 4% market share.

This is why many people find the "Bitcoin $1 Million" price target unrealistic, and it's also the reason I've never believed in it over the years.

Based on the current market size, Bitcoin would need to capture over 50% of the store of value market to reach $1 million, which is a very high threshold.

But the key point that most people overlook is: the store of value market is not static. In fact, it has expanded significantly over the past 20 years. And as concerns about fiat currency depreciation spread, I believe this expansion will continue.

A Brief History of Gold

The first time I really paid attention to gold was when the first gold ETF in the U.S. was launched in 2004. At that time, the entire gold market had a market cap of about $2.5 trillion—not much larger than the current Bitcoin market.

Over the years, it has grown to nearly $40 trillion, with a compound annual growth rate of 13%. The reason behind this growth is: increasing concerns about government debt, geopolitical risks, loose monetary policy, and other issues.

Gold Market Cap, 2004 to Present

Source: Bitwise Asset Management, data from the World Gold Council and Bloomberg.

The mistake people make when evaluating Bitcoin's potential is ignoring this growth.

If this growth rate continues, in 10 years, the global "store of value market" will reach around $121 trillion. At this scale, Bitcoin would only need to occupy 17% of the market, and one coin would reach $1 million.

Going from 4% to 17% is still a huge growth, but looking back at Bitcoin's recent progress, this target is entirely achievable.

A few years ago, the U.S. didn't have a Bitcoin ETF, institutional holders were few, Bitcoin's volatility was too high, and almost no one was willing to allocate more than 1%.

Now:

· Bitcoin ETF has become the fastest-growing ETF in history;

· From Harvard endowment funds to Abu Dhabi sovereign wealth funds, various institutions are holding;

· Bitcoin's long-term volatility has decreased, and many professional investors are considering a 5% allocation.

The road is still long, but under these trends, capturing 1/6 of the store of value market within 10 years is not extreme, but rather a natural extension of current trends.

Possible Risks

Of course, we must consider both sides of the issue.

The global store of value market may not continue to grow as it has in the past 20 years. The past 20 years have seen global financial crises, quantitative easing, and long-term low interest rates, environments that may not repeat in the future, and the price of gold may fall.

Another risk is: Bitcoin may not be able to expand its market share.

However, I believe these predictions may also be conservative: as concerns about government debt reach crisis levels, the store of value market may grow even faster in the future, and the market share occupied by Bitcoin in 10 years may be much higher than 17%.

In my view, the base case is:

· The store of value market continues to expand as it has in the past; Bitcoin continues to increase its share as it does now.

· This will drive Bitcoin's price far above today's levels.

Footnotes

(1) Long-time readers may remember that I wrote about a similar topic in 2023. Since then, my views have become clearer.

(2) It is worth noting: if we include silver, platinum, and palladium in the calculation, the store of value market would be larger. However, for the sake of comparison, this article only compares gold and Bitcoin.

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