It was just hours ago from where I stand right now that CNN headlined an unbelievable story: Bitcoin (CCC:BTC-USD) topped the psychological threshold of $20,000. Typically, this would be the time for a traded asset to tumble in value as investors head for the exits, afraid to hold the bag. But not this time.
No, in this case, people are eager to hold the bag and then some. When the sun breaks above the horizon, and the financial news media wakes up, they’ll probably do so to a bitcoin price above $23,000. But no matter what the case may be, the most important takeaway is that the cat is out of the bag.
If you’ve been thinking about cryptocurrencies but have been too hesitant to jump aboard, I’m not sure what to tell you. Yes, at some point, the virtual currency market will cool down. But by the time it enters a prolonged correction – and I’m using “prolonged” in crypto standards – the sector will have likely breached astounding valuations.
But how high can bitcoin go? As you’ve probably seen, observers have thrown all kinds of crazy numbers. Commonly, the six-figure threshold seems a reasonable target, given that on a percentage basis, we’re talking about a 334% move – a performance rate that’s not unusual for high-growth technology stocks.
Personally, I’m on record that bitcoin will hit $40,000, less than double from the time of writing. At this point, this forecast seems like a foregone conclusion. But the estimate that really keeps my blood flowing is bitcoin one million.
That’s right, $1 million. As you know, the most expensive stock in the world is Berkshire Hathaway (NYSE:BRK.A). Presently, its shares are trading hands at $338,500. Should bitcoin hit seven figures, the blockchain token would nearly triple BRK.A.
Of course, that’s hogwash … or is it?
Why Bitcoin One Million Isn’t Entirely Science Fiction
Now, I want to be clear about something before you attempt to have me institutionalized. I’m not suggesting that bitcoin will hit this fantastical figure. Certainly, many factors must play favorably for virtual currencies to get to that point. But what I do want to express is that the concept isn’t completely unreasonable.
First, some high-profile individuals have stuck their neck out to make this pronouncement. Most notably, Raoul Pal, the former Goldman Sachs hedge-fund manager, stated in an interview with Stansberry Research that “an enormous wall of money” could pour into the cryptocurrency. Moreover, Pal believes that this wave could see bitcoin hitting seven figures in five years’ time.
We’ve all seen what virtual currencies can do by now. Therefore, it wouldn’t be right to dismiss outlandish forecasts offhand. But I’m sure you’ll agree, there’s a big difference between BTC hitting $100,000 versus $1,000,000.
Yet when we analyze the BTC chart against a logarithmic scale – where the emphasis is on magnitude of change, not nominal price changes – the dynamic to support much higher prices doesn’t seem unreasonable. Rather than an asset that shoots straight to the moon after years of sideways trading, we see a gradual progression, followed by a corrective phase.
Critically, the period between September 2014 to now (roughly 6.33 years) featured BTC growing at a compound annual growth rate (CAGR) of a little over 88%. Apply that same 88% CAGR to the following 6.33 year period and you get a $1.17 million price tag in early spring 2027.
Obviously, history isn’t guaranteed to repeat itself so this CAGR exercise could end up being worthless. Still, what we haven’t addressed yet is the fundamental backdrop, which is shockingly bullish for bitcoin and the entire cryptocurrency complex.
The Plot Thickens
For years, we’ve been inundated with stories that millennials are falling behind financially. For instance, this Wall Street Journal report last year revealed that Americans in this demo are in “worse financial shape than every preceding living generation and may never recover.”
I agree with the former but not so much the latter.
You see, most people forget that the massive wealth that the baby boomers accumulated has to go somewhere. They can’t take it with them. No one can. And the natural choice for where that wealth is ultimately transferred to is their progeny.
As I mentioned in prior articles, by the end of what I have termed the Roaring 2020s, “millennials will have 5x more wealth than they have today.” Therefore, the “future demand for bitcoin and altcoins is basically guaranteed, simply from the transfer of wealth to the younger generation.”
Because let’s face it – young people aren’t as interested in stocks, bonds and real estate. For many of them, virtual currencies reflect the independence and the de-coupling from traditional hierarchies (think the gig economy) for which they are most known. Soon, they’ll have the capacity to exercise their desires.
Will that be enough to lift bitcoin to $1 million? I don’t know. But for now, bitcoin $40,000 is looking incredibly prescient.
On the date of publication, Matthew McCall did not have (either directly or indirectly) any positions in the securities mentioned in this article.
On the date of publication, the InvestorPlace Research Staff member primarily responsible for this article held a long position in bitcoin.