A Fidelity analyst has proposed different valuation models for Bitcoin, one of which hypothesizes that the cryptocurrency could be worth $1.2 million by 2030.
The price of Bitcoin (BTC 2.80%) is determined by supply and demand. Its source code limits supply to 21 million coins, and 19.6 million of that total are already in circulation, meaning new Bitcoin supply has slowed to a trickle. But Bitcoin demand has risen sharply over the past year -- so much so that its price has soared 180% to $62,0000 (as of March 5).
Some of that demand can be attributed to a broad rotation into risk assets. Investors have become more comfortable with growth stocks and cryptocurrencies as recession fears have diminished. But the recent approval of spot Bitcoin exchange-traded funds (ETFs) has also boosted demand. In fact, through the first month of trading, spot Bitcoin ETFs issued by BlackRock and Fidelity saw greater inflows than any other ETFs in history, according to Bloomberg Intelligence.
Of course, the big question is, where does Bitcoin go from here? Given that its price trajectory is a product of supply and demand, a Fidelity analyst has proposed supply based and demand-based valuation models that attempt to answer that question. One of those models values a single Bitcoin at $1.2 million by 2030, implying about 1,970% upside from its current price.
Bitcoin valuation models proposed by a Fidelity analyst
Jurrien Timmer, Fidelity's director of global macro, recently posted a valuation model on X (formerly known as Twitter) that prices Bitcoin based on the stock-to-flow (S2F) ratio of monetary gold. To elaborate, monetary gold refers to quantities of the precious metal held in reserve by countries and international financial institutions. And S2F models value scarce assets like precious metals based on the relationship between existing supply (i.e., stock) and new supply created each year (i.e., flow).
Timmer estimates the value of monetary gold at $6 trillion today, and he believes Bitcoin will capture one-quarter of that total. That would give Bitcoin a market capitalization of $1.5 trillion, implying about 25% upside from its current market capitalization of $1.2 trillion.
But the S2F model also shows Bitcoin appreciating alongside monetary gold in the future, such that its market capitalization could cross $2 trillion by 2030 (67% upside), $3 trillion by 2035 (150% upside), $9 trillion by 2045 (650% upside), and $20 trillion by 2055 (1,567% upside).
One possible problem with that valuation method is that it assumes a fixed relationship between the price of Bitcoin and monetary gold, ignoring the possibility that growing demand for Bitcoin could cause its price trajectory to diverge. To that end, Timmer, Fidelity's director of global macro, hypothesized alternative demand-based models that value Bitcoin using the adoption curves of other network-based technologies like the internet and cellphones.
Specifically, if Bitcoin adoption (measured as the number of addresses with at least 0.001 bitcoin) follows the same trajectory as internet adoption, its per-coin value would exceed $343,000 by 2030, implying about 470% upside from its current price. But if Bitcoin adoption follows the same trajectory as cellphone adoption, its per-coin value would exceed $1.2 million by 2030, implying about 1,970% upside from its current price.
Forecasting the future is impossible, but Bitcoin is worth buying
British statistician George Box once said, "All models are wrong, but some are useful." Investors should bear that in mind when considering Bitcoin, or any other asset for that matter.
The valuation models discussed certainly have merit. Bitcoin has a finite supply much like gold, and that scarcity will factor into future price appreciation. But Bitcoin is also built on a digital network like the internet and cellphones, and the resultant network effect -- meaning those technologies become more valuable as more people participate -- will also factor into future price appreciation.
However, Bitcoin is a new asset class, and its price trajectory is impossible to forecast. It may bear some resemblance to the S2F model used to value scarce assets like gold, and it may bear some resemblance to the adoption curves of digital networks like the internet and cellphones. But Bitcoin probably will chart its own unique path higher (or lower) in the future, and that path will primarily depend on demand because its lifetime supply is fixed.
Investors should also bear in mind that Bitcoin has historically been very volatile. In fact, its value has declined more than 50% from a record high on three separate occasions in the last five years. That volatility is likely to persist for the foreseeable future. Investors comfortable with those risks and uncertainties should consider buying a small position in Bitcoin right now.
Editor's note: This article has been corrected. The analysis discussed here was done by Fidelity’s director of global macro, Jurrien Timmer.
Trevor Jennewine has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Bitcoin. The Motley Fool has a disclosure policy.
