Author: Matt Hougan, Chief Investment Officer at Bitwise
Compiled by: Saoirse, Foresight News
A few days ago, a financial advisor asked me: "Matt, do you really think one Bitcoin can be worth $1 million? That number is just insane."
I understand his perspective. $1 million does sound outrageous. It would require Bitcoin to increase 14 times from its current price.
When I entered the crypto industry full-time in 2018, I would have laughed at such a statement. Back then, Bitcoin was around $4,000, and a $1 million target — even for me — seemed utterly absurd.
But I don't think that way anymore. The deeper I've researched this asset, the more I've realized: I, like my financial advisor friend, was making a very fundamental error in analyzing Bitcoin's potential.
In this week's memo, I want to explain that error and show how a set of fairly conservative assumptions can lead to a conclusion that Bitcoin could reach $1 million.
How to Estimate Bitcoin's Value
I view Bitcoin as an emerging store-of-value asset. It serves a similar function to gold — allowing people to hold wealth outside the traditional fiat currency and banking system, but in a digital form. It's more volatile and has a shorter history than gold, but it's competing for the same market.
Within this framework, the basic logic for estimating its value is straightforward:
- Estimate the total size of the store-of-value market;
- Estimate the share Bitcoin could capture;
- Divide by 21 million (the maximum supply of Bitcoin).
This gives you its implied price.
Today, the store-of-value market is nearly $38 trillion:
- Gold: $36 trillion
- Bitcoin: $1.4 trillion
By this measure, Bitcoin currently holds less than 4% market share.
This is why many find "$1 million Bitcoin" unrealistic, and it's why I didn't believe it for years.
At the current market size, Bitcoin would need to capture over 50% of the store-of-value market to reach $1 million — an incredibly high bar.
But the key point most people miss is this: 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 debasement spread, I believe this expansion will continue.
A Brief History of Gold
I first paid real attention to gold around the launch of the first US gold ETF in 2004. Back then, the entire gold market was worth about $2.5 trillion — not much larger than the Bitcoin market is today.
It has since grown to nearly $40 trillion, with a compound annual growth rate (CAGR) of 13%. The driving force has been rising concerns about government debt, geopolitical risks, loose monetary policies, and other issues.
Gold Market Capitalization, 2004 to Present
Source: Bitwise Asset Management, data from World Gold Council and Bloomberg.
The mistake people make when assessing Bitcoin's potential is ignoring this growth.
If this growth rate continues, in 10 years, the global "store-of-value market" will be worth approximately $121 trillion. At that size, Bitcoin would only need to capture 17% of the market for one coin to reach $1 million.
Growing from 4% to 17% is still significant growth, but looking at Bitcoin's recent progress, this goal is entirely within reach.
A few years ago, the US had no Bitcoin ETFs, institutional holders were scarce, and Bitcoin's volatility was too high for most to consider allocating more than 1%.
Now:
- Bitcoin ETFs are the fastest-growing ETFs in history;
- Institutions from the Harvard Endowment to the Abu Dhabi Sovereign Wealth Fund are holding it;
- Bitcoin's long-term volatility has decreased, and many professional investors are considering allocation targets of 5%.
There's still a long way to go, but given these trends, capturing one-sixth of the store-of-value market within 10 years is not extreme; it seems more like a natural continuation of existing trends.
Potential Risks
Of course, we must consider both sides.
The global store-of-value market might not continue to grow as it has over the past 20 years. The past two decades featured the global financial crisis, quantitative easing, and prolonged low interest rates. These conditions may not repeat, and the gold price could decline.
Another risk is that Bitcoin might fail to increase its market share.
However, I believe these predictions might also be conservative: as concerns about government debt reach crisis levels, the store-of-value market could grow even faster in the future, and Bitcoin's eventual market share in 10 years could be significantly 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 gain share as it is doing now.
This would push Bitcoin's price far above today's levels.
Notes
(1) Long-time readers might remember I wrote on a similar theme in 2023. My views have since become more refined.
(2) Worth noting: Including silver, platinum, and palladium would make the store-of-value market larger, but for simplicity, this article compares only gold and Bitcoin.
