Bitwise: Why is Bitcoin destined to reach one million dollars?

Written by: Matt Hougan, Chief Investment Officer at Bitwise

Translated by: Saoirse, Foresight News

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

I understand his thinking. $1 million does sound outlandish. That would mean Bitcoin needs to increase 14 times from its current price.

When I first went full-time into the crypto industry in 2018, I would have just laughed at such a statement. At that time, Bitcoin was around $4,000, and even for me, the $1 million target seemed utterly absurd.

But I don’t think that way anymore. As I’ve studied this asset more deeply, I’ve realized: I, like my friend the financial advisor, made a very basic mistake when analyzing Bitcoin’s potential.

In this week’s memo, I want to explain this mistake and show how a set of quite conservative assumptions can lead to the conclusion that Bitcoin could reach $1 million.

How to Estimate Bitcoin’s Value

I see Bitcoin as an emerging store of value asset. Its role is similar to gold — allowing people to hold wealth outside traditional fiat currencies and banking systems, but in digital form. It’s more volatile than gold and has a shorter history, but it’s competing in the same market.

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

1. Estimate the total size of the store of value market;

2. Estimate the share Bitcoin could capture;

3. Divide by 21 million (Bitcoin’s maximum supply).

This gives you its implied price.

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

• Gold: $36 trillion

• Bitcoin: $1.4 trillion

Based on this, Bitcoin currently accounts for less than 4% of the market share.

That’s why many people think “Bitcoin at $1 million” is unrealistic, and why I’ve been skeptical for years.

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

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

A Brief History of Gold

I first paid serious attention to gold in 2004, when the first gold ETF in the U.S. was launched. At that time, the total gold market cap was about $2.5 trillion — not much bigger than today’s Bitcoin market.

Over the years, it has grown to nearly $40 trillion, with a compound annual growth rate of 13%. The reason behind this is rising concerns over government debt, geopolitical risks, and loose monetary policies.

Gold Market Cap from 2004 to Present

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

A common 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 could reach about $121 trillion. At that size, Bitcoin would only need to capture 17% of the market for a single coin to be worth $1 million.

Growing from 4% to 17% is still a huge increase, but looking at Bitcoin’s recent progress, this target is entirely within reach.

A few years ago, there was no Bitcoin ETF in the U.S., institutional holdings were minimal, and Bitcoin’s volatility was too high for most to allocate more than 1%.

Now:

• Bitcoin ETFs are the fastest-growing ETFs in history;

• Institutions like Harvard’s endowment and Abu Dhabi’s sovereign wealth fund are holding Bitcoin;

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

The road ahead is long, but under these trends, capturing one-sixth of the store of value market within 10 years isn’t extreme — it’s a natural extension of current trends.

Potential 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 over the past 20 years. The last two decades saw the global financial crisis, quantitative easing, and prolonged low interest rates — environments that may not recur, and gold prices could decline.

Another risk is that Bitcoin might not expand its market share.

However, I believe these predictions could be conservative: as concerns over government debt reach crisis levels, the store of value market could grow even faster, and Bitcoin’s share in 10 years could be much higher than 17%.

In my view, the baseline scenario is:

• The store of value market continues to expand as it has;

• Bitcoin continues to increase its share as it has recently.

This would push Bitcoin’s price far above today’s levels.

Notes

(1) Longtime readers may recall I wrote about a similar topic in 2023. Since then, my perspective has become clearer.

(2) It’s worth noting: if silver, platinum, and palladium are included, the store of value market would be larger, but for simplicity, this article compares only gold and Bitcoin.