With Bitcoin (BTC 0.73%) soaring in price, analysts and traders are now ratcheting up their predictions for just how much higher this crypto could go. While some of these predictions sound like pie-in-the-sky wishful thinking — such as claims that Bitcoin will skyrocket in value to $1 million in a matter of weeks — there are actually some predictions that are much more grounded in reality.
Take, for example, the recent prediction from Fidelity Investments that Bitcoin could soon gain another $500 billion in market cap. Given Bitcoin’s recent price of $50,000 and $1 trillion market cap, that would imply that Bitcoin could soon skyrocket in value to $75,000 and a $1.5 trillion market cap. That would be just enough to push Bitcoin past its all-time-high of $69,000. So is Fidelity right?
Bitcoin as digital gold
Fidelity Investments’ valuation forecast is based primarily on a single observation: Bitcoin is increasingly taking over from gold as a store of value and a hedge against inflation for many investors. This makes sense on a certain level, given that Bitcoin has long been referred to as “digital gold.” As a result, analysts have often used the size of the gold market as a reference frame for just how valuable Bitcoin might become in the future.
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It’s hard to imagine a future in which Bitcoin replaces gold entirely, of course, but Fidelity now thinks that Bitcoin could account for 25% of the monetary gold market, which is defined as the gold held by central banks, large financial institutions, and governments. Quite simply, instead of buying gold as a hedge against future economic uncertainty, these institutions will soon be buying Bitcoin. Given that the size of the monetary gold market is approximately $6 trillion, that shift in strategy could drive a massive amount of new buying in Bitcoin.
How realistic is the 25% figure?
On the surface, the 25% figure sounds outlandish. It’s hard to imagine Federal Reserve chief Jerome Powell arguing the merits of Bitcoin over gold, or huge Wall Street institutions going all-in on Bitcoin as a store of value. But you might be surprised by what the current numbers tell us.
For example, if you buy into the argument that Bitcoin is “digital gold,” all you have to do is compare Bitcoin’s current valuation to the valuation of the monetary gold market. This will give you an approximate idea of Bitcoin’s current market share. And guess what? Bitcoin’s current valuation of $1.2 trillion is almost exactly 20% of the $6 trillion monetary gold figure used by Fidelity. So ramping up that 20% figure to 25% doesn’t sound all that implausible.
In addition, if you stress-test the Fidelity assumptions against those used by other Wall Street institutions, they actually seem a bit conservative. In 2022, for example, Goldman Sachs predicted that Bitcoin would eventually account for 50% of the monetary gold market, giving Bitcoin a nice round price of $100,000. And in its 2023 “Big Ideas” report, Ark Invest used a 20% market share in its bear case scenario, 40% in its base case scenario, and 50% in its bull case scenario.
Is Bitcoin more than just digital gold?
The more you play around with the numbers, in fact, the higher the true valuation for Bitcoin would appear to be. Keep in mind that the idea that Bitcoin could gain another $500 billion in market cap is based primarily on the “digital gold” argument. It does not take into account the new spot Bitcoin ETF inflows or the upcoming Bitcoin halving. And it does not take into account Bitcoin’s growing role in the global economy. Once you add in all these factors, the future valuation of Bitcoin seems nearly unlimited.
But just one caveat here: It’s easy to fall into the trap of thinking that Bitcoin is worth more than it really is. For example, during the last crypto bull market cycle, Fidelity Investments famously predicted that a single Bitcoin would be worth $1 billion by the year 2038. So be careful about the numbers and assumptions that you use.
That said, it’s hard not to be bullish on Bitcoin right now. Now that the big Wall Street institutions are backing Bitcoin and creating new investment products for it, the future potential of this crypto appears to be sky-high.
Dominic Basulto has positions in Bitcoin. The Motley Fool has positions in and recommends Bitcoin and Goldman Sachs Group. The Motley Fool has a disclosure policy.
