Among the cryptocurrencies, many analysts like to place aggressive price targets on is Bitcoin (CRYPTO:BTC). On the Jan. 5 episode of “The Crypto Show” on Backstage Pass, Fool.com contributor Chris MacDonald and The Motley Fool’s Eric Bleeker discussed some of the price targets around Bitcoin, and whether this token could hit $100,000 this year.
Eric Bleeker: I wanted to go across the internet and then just capture some of the predictions for crypto ahead into the year. Maybe by the time we get to 2023, we can look back at some of these, see how they’re doing, but evaluate what we think of each of them.
The first will be a prediction of Bitcoin to $100,000, I know if you’re a longtime viewer of the show and you saw our last show that we did live before we had the holiday interviews. We talked about Bitcoin going past $500,000 and the prediction from Cathie Wood on that. Goldman Sachs (NYSE: GS) not quite as ready to go for a 10x prediction, but they did go for a $100,000.
It is based on a hypothetical situation, where Bitcoin is currently at 20% of what they call the store of value market. They say it’s float-adjusted, which I don’t quite know that metric is, but float-adjusted market cap is $700 billion. It’s total value of gold available for investment. I should say the total value of gold that’s used for investments, $2.6 trillion, I believe the overall gold mark is closer to $10 trillion, but I don’t have that quite offhand.
Their hypothetical rising to 50% of the market would take Bitcoin to over $100,000 issuing a compounded annual return of 17%, and there’s a little typo there to 18%, and they say that Bitcoin rising versus Gold, a most likely scenario, putting low confidence behind it.
As I alluded to at the start of the show, this is all in the background of Bitcoin dominance, which is proportionately overall crypto market dropping to 39.4%. We have a moment of Bitcoin isn’t horribly off from recent highs. Its recent high was 69,000, it was a brief peak there. I think before this show is around $46,000, $47,000. It is a moment of relative weakness for Bitcoin.
Chris, what are you buying in terms of this store of value argument?
Chris MacDonald: I think that’s definitely one of the fundamental ways that investors try to value Bitcoin is relative to gold as a store value. This analysis is something that makes it easy to understand for the average person.
Why would you invest in a digital token as a store value? Well, it’s the same thesis as to why someone would buy gold.
There’s very prominent figures such as Warren Buffett who have pointed out that why would I buy gold, it just sits there, doesn’t really do anything, it’s not productive, and the same thing goes for Bitcoin. But, it is a store value, and relative to U.S. dollars, it acts as a currency hedge.
There are certain attributes of it that make sense in this environment, especially with inflation being what it is, and people worried about the strength of the U.S. dollar, but also they’re also worried about how equities might perform in this environment.
One of the things behind Cathie Wood’s $500,000 price target was that there’s a low correlation between Bitcoin and other assets like stocks. There are multiple factors here, I think Goldman Sachs is focusing more on the gold argument and that makes more sense. Just because it’s a lot easier to understand, there’s some fundamental basis for it when you think about how gold is valued.
But like you said, there are other projects right now that are eating into Bitcoin’s market share the extent to which that continues remains to be seen and there are some risks to this argument as well. Gold has been around for tens of thousands of years and Bitcoin has been around for 13, just had its 13th birthday. It’s proven, it’s time-tested relative to the other cryptocurrencies in the market right now but this case that Goldman Sachs is making is probably one of the simpler ones to understand for the average retail investor.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.