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Bitcoin hit another new all-time high Tuesday, touching $19,920 in the morning before slipping to the low $19,000s later in the day. Analysts and investors have been issuing new price targets for the cryptocurrency, often predicting that it will skyrocket to many multiples of the current price.
But the underpinning of those estimates is still hazy—Bitcoin produces no cash flows and is hardly used for transactions. It’s a software that allows people to transact, and is controlled by no single entity—the software operates on computers set up around the world.
Although Bitcoin still sometimes moves as much 5% in an hour, it can be hard to pinpoint exactly why.
Analysts used to claim the price had something to do with the difficulty of “mining” Bitcoin—the cost of the electricity and equipment it takes to complete the equations necessary to create new Bitcoins. Given the asset’s volatility and unpredictability, however, few still cite this metric.
New metrics are emerging. BTIG analyst Julian Emanuel analyzed Bitcoin’s price in part by comparing it to the
Nasdaq 100
(NDX), which first peaked in the dot-com bubble and then took years to reach that peak again. With that in mind, he thinks it’s feasible the price goes to $50,000 by the end of next year.
“It took NDX 14 years to rise above its parabolic ‘blowoff top’, then 6 years to rise a further 150%,” he wrote. “Bitcoin appears poised to exceed its 2017 parabolic ‘blowoff top’ in a mere 3 years. Should Bitcoin’s speed of ascent keep pace with the past three years and the degree of the rally approximate that of NDX, $50,000 per Bitcoin is a reasonable year end 2021 Price Target.”
Tyer and Cameron Winklevoss, large Bitcoin holders who founded cryptocurrency exchange and custodian Gemini, recently predicted that the price could go to $500,000 “one day” on the theory that it eventually replaces gold, which is now worth over $10 trillion.
Others also see the total value of Bitcoin one day rising into the trillions, from its current levels around $350 billion. Michael Saylor, CEO of software firm Microstrategy (MSTR) and a recent Bitcoin bull, said in an interview with Barron’s that Bitcoin solves “a $250 trillion problem” — that’s the total value of fiat currency in the world, which he thinks is being devalued rapidly because governments are printing money.
If Bitcoin ends up becoming the trusted financial mechanism for solving that devaluation problem it could be worth half of that $250 trillion, he contends. If it’s total value was $125 trillion, each Bitcoin would be worth about $6 million. “I think it’s possible,” Saylor said.
Justin d’Anethan, a sales manager at digital asset firm
Diginex,
said he doesn’t like to put a price target on Bitcoin, because he believes the price is simply based on public sentiment about the value of having a decentralized, scarce digital asset. Gold is the closest corollary. “If we take that approach, the potential for BTC is huge, not only because there is plenty of room to catch up to gold’s total value, but because it could outgrow it,” he wrote in an email to Barron’s.
That is why valuing Bitcoin can feel like a circular argument. It’s worth more because people think it’s worth more—and even discussing such big numbers can egg investors on. That, of course, makes it dangerous too. Reversals in sentiment happen fast. And it’s why many fund managers continue to tell clients that there is a number they also need to consider when looking at Bitcoin: $0. It isn’t inconceivable that their investment could be completely wiped out, either because of government action or a catastrophic software issue like a hack (although attempts to hack Bitcoin so far have been unsuccessful). Unlike a real asset, there would be nothing left to sell for scrap.
Write to Avi Salzman at avi.salzman@barrons.com
