What is the true value of a Bitcoin? Now I’m not the first to say this, but if bitcoins are to be treated and used as a “real currency”, adopted and used by millions if not billions of people worldwide, I think each bitcoin will find its way to a value of at least $10,000.
Today, bitcoins are worth about $144 each and with 11.8 million of them in circulation, the value of all bitcoins reaches $1.7 billion and since bitcoins are the first truly global digital currency it’s fair to measure them on a global scale. With a world population approaching 7.2 billion, that’s less than 25 cents worth in bitcoins per person to go around. Compare this to nearly 11 trillion U.S. dollars in circulation, worldwide ($1,500 per person). These numbers illustrate just how small the total value of bitcoins in circulation remains and how much the total value of bitcoins must appreciate before there is enough value to spread around. A substantially larger bitcoin market size will help encourage acceptance within major businesses around the world. Sure, some large business like Baidu recently started accepting bitcoins, but this was likely more of a marketing tactic than a shift in their business model.
Put into perspective, the total market of bitcoins is tiny– so tiny that Mark Zuckerberg (CEO of Facebook) could theoretically purchase all bitcoins in existence with only 7% of his net worth! Obviously this couldn’t actually happen in real life, but the analogy helps visualize the market size for bitcoins. Also, Amazon.com, an online business that could save a tremendous amount of money on credit card transaction fees by accepting bitcoins, doesn’t yet. Why? Because Amazon brings in over $61 billion a year in revenue! The current value of all bitcoins in existence is less than $2 billion. Do the math, it’s small potatoes… but not for long!
Today, there’s simply not enough total value unlocked within bitcoins to go around to enough people to encourage a robust bitcoin supply chain. Plus there is no central bank that’s able to print more bitcoins when it wants and no fractional reserve banking system to inflate the supply of bitcoins artificially (this is a good thing). However, because of this, many early adopters and supporters continue to save bitcoins, waiting for their inevitable appreciation. So where will the bulk of this appreciation come from? The answer is asset diversification.
Over the next 3 to 5 years small amounts of wealth currently invested in stocks, bonds, commodities, gold, silver, real estate and other hard assets will slowly make its way into bitcoins. And only very small fractions are required!
Watch the video below featuring Tuur Demeester speaking about this idea in his presentation at the 2013 Bitcoin Conference in San Jose.
In addition to Tuur’s video above, below is a slide from the Bitcoin Investment Trust recently offered by Secondmarket.
In my opinion, bitcoins are behaving more like and asset class or store of value than a currency of late, and it may be this way for a little while longer. Yes, bitcoin transaction volumes continue to grow, but most accepting merchants remain small while large business don’t see the urgency given the size of the overall market. As more investors and wealthy individuals seek to diversify their wealth, safe havens and hedges against inflation will be sought after. Bitcoin will remain in the spotlight, and as the confiscation of wealth in Cyprus earlier this year showed us, your money is not always safe in banks.
However, in 5 years there will be 17 million bitcoins in circulation and with a $10,000 price per bitcoin their combined value would equal $170 billion. Still technically quite small, but enough value to go around and encourage a deeper supply chain of accepting merchants and a larger pool of users to that spend bitcoins. $170 billion would still only represent 1.3% of the total U.S. dollars in circulation by 2018. Compared to the current valuations of tech companies like Facebook and Google, Bitcoin would then fall right in the middle, but remain less than half the value of Apple. It’s clear, bitcoin has a long way to go and the bitcorati are all in!
So, that’s how I see bitcoins appreciating to $10,000 per coin in the next 5 years.
Is this a fair and accurate prediction? What do you think a bitcoin is worth and why?