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Hitting $13 million is a tall order for Bitcoin. Is it possible?
Do you feel like you’ve missed the boat on Bitcoin‘s (BTC 0.11%) meteoric rise? If Michael Saylor is to be believed, you might be in luck. Saylor, the brash chief of business intelligence firm MicroStrategy (NASDAQ: MSTR)is known for bold, often controversial takes and is fond of making eye-watering Bitcoin predictions.
His latest claim? Bitcoin, which today hovers around $56,000, could be worth as much as $13 million by 2045. That’s a roughly 23,100% gain from today — not a bad return. So, is this reasonable? Is now the time to buy in?
Michael Saylor’s bull case Bitcoin prediction rests on his belief that Bitcoin is “the world’s first perfect money”
Modern currency is inflationary. That might sound bad, but it’s designed to be so. The idea is that if currency loses value over time, people will prefer to spend or invest it rather than hoard it. If a dollar is less valuable next year, why hold on to it?
If, however, that dollar became more valuable a year from now — that would be a deflationary currency — why would I not stick it under my couch? I’d be richer by doing absolutely nothing, right? If everyone stuck their money under the couch, that would slow the economy because money would not be changing hands.
That is an extremely simplified version of the kind of economics most modern governments ascribe to, but Saylor — and most Bitcoin believers for that matter — is highly skeptical of that system. The basic thesis is that governments are unable to keep inflation in check, and as time goes on that money becomes not just slightly less valuable — as it’s intended to — but mostly worthless, conjuring images of people pushing around wheelbarrows of cash to buy a loaf of bread.
His “perfect money,” Bitcoin, blurs the line between asset and cash, becoming more valuable over time, but still easily spent because of its digital nature.
This purest Bitcoin argument is certainly an interesting idea and one that isn’t without merit, but it’s rooted in a fundamental mistrust of our modern economic system. I can’t say I agree. However, you don’t have to buy into this theory in full to see that Bitcoin does have some unique features that make it a good store of value.
A Bitcoin price target of $13 million is optimistic, to say the least
Is Saylor’s bull case price target of $13 million 21 years from now attainable? Let’s look at some numbers.
First, note that MicroStrategy says it is the “largest corporate holder of Bitcoin in the world,” with $15 billion worth. So the company and Saylor — who owns 10% of the company’s shares and likely also still owns lots of Bitcoins himself — benefit when the price of Bitcoin rises. So Saylor has a vested interest in building optimism for the cryptocurrency.
Looking in the reverse, it took roughly nine years for Bitcoin to rise 24,000% to today’s level. Take a look at this chart of Bitcoin’s growth during that time compared to the S&P 500 — a useful proxy for the broader market as a whole –as context. The scale of Bitcoin’s assent is pretty mind-boggling, growing at an annualized rate of more than 80%.
Bitcoin Price data by YCharts
Saylor’s prediction would be the same gain, but in more than twice the time, working out to a much smaller 30% annualized growth rate. We know the S&P, on the other hand, has returned a little over 10% annualized since its inception in the 1950s — of course, there were plenty of individual years when it returned much more or much less, but that that is its average. To expect to beat the market by 20 percentage points every year for 20 years is a tall order.
OK, you might be thinking the S&P is a bad benchmark — after all, Bitcoin certainly left it in the dust up to this point — and you might be right. I mean, all you have to do is look at that chart above. But here’s the thing, I believe that as Bitcoin matures and more institutional money enters, its ability to deliver returns completely divorced from more traditional investments will diminish.
The correlation of the stock market and Bitcoin from 2009 through much of the 2010s was near 0; there was no relationship whatsoever. However, from 2020 to 2023, that correlation number sat between 0.2 and 0.75 (1 is perfectly correlated). To be sure, this can always return to 0, but I don’t think it’s a coincidence that 2020 and 2021 were when many large institutions began investing in Bitcoin in earnest.
Let’s look at it another way, the total Bitcoin market is worth about $1 trillion today. The total equities market is north of $100 trillion, so Bitcoin is worth just 1%. Assuming a 10% growth rate, global equities will be worth $740 trillion in 2045 while the total Bitcoin market — using Saylor’s prediction — would be worth nearly $250 trillion. Bitcoin would go from less than 1% to 34% of global equities.
I think this is just too lofty a target. This is a complete paradigm shift; Bitcoin would not just be worth 34% of equities, it would be worth 200% of global gold, up from its 6% mark today. In fact, it would be worth more than any global asset class save for equities, real estate, and bonds. Yes, Bitcoin went from $0 to $1 trillion in 15 years, but at this point, it is still a somewhat minor player in global investments. This best bull case would be a reordering of global capital much more fundamental than what we’ve seen up to this point.
I think Bitcoin will undoubtedly beat the market for years to come. Indeed, I think we will see at least an annualized return of 30% or more for some time. However, I don’t think this will last for 20 years like Saylor does. I freely admit I could be wrong, but I think aiming for a more reasonable growth rate long term is the smart move. If, say, Bitcoin grew to 5% of global equities by 2045, you would still return an average of 19% a year.