Author: Matt Hougan, Chief Investment Officer at Bitwise
Translation: 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 outrageous. 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. Back then, 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 financial advisor friend, made a fundamental 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:
- Estimate the total size of the store of value market;
- Estimate the share Bitcoin could capture;
- Divide by 21 million (Bitcoin’s maximum supply).
This gives its implied price.
Today, the store of value market is close to $38 trillion:
- Gold: $36 trillion
- Bitcoin: $1.4 trillion
According to this, Bitcoin currently accounts for less than 4% of the market share.
That’s why many people think “$1 million Bitcoin” is unrealistic, and it’s also why I’ve never believed it for years.
At current market size, Bitcoin would need to capture over 50% of the store of value market to reach $1 million, which is a very high threshold.
But a key point most overlook is: 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 US gold ETF launched. At that time, the total gold market cap was about $2.5 trillion — not much larger than today’s Bitcoin market.
Since then, 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 were no Bitcoin ETFs in the US, 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 endowments and Abu Dhabi sovereign wealth funds are holding Bitcoin;
- Bitcoin’s long-term volatility has decreased, and many professional investors are considering a 5% allocation.
The road 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 might not continue to grow as it has over the past 20 years. The past 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.
But I believe these forecasts could also 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 in the past;
- Bitcoin continues to increase its market 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 views have become clearer.
(2) It’s worth noting: if silver, platinum, and palladium are included, the store of value market would be even larger, but for simplicity, this article compares only gold and Bitcoin.
